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COFXR1GHT DEPOSIT. 



THE 



FINANCIAL HISTORY 



' UNITED STATES, 



FROM 1789 TO 1860. 



BY 



ALBERT S. BOLLES, 



PROFESSOR OP MERCANTILE LAW AND PRACTICE IN THE WHARTON SCHOOL OP 

FINANCE AND ECONOMY, UNIVERSITY OP PENNSYLVANIA; LECTURER IN 

POLITICAL ECONOMY IN THE BOSTON UNIVERSITY; AND 

EDITOR OP "THE BANKERS' MAGAZINE." 



/ 




NEW YORK: 
D. APPLETON AND COMPANY, 

1, 3, and 5 Bond Street. 
1883. 



' 






Copyright, 1883, 
By ALBERT S. BOLLES. 



ifranftfin $re?£ : 

RAND, AVERY, AND COMPANY, 
BOSTON. 



TO THE 

HON. ABRAM S. HEWITT 

&fy& Volumz i& ©eturateti 

IN ACKNOWLEDGMENT OF HIS EMINENT WOETH AS A LEGISLATOB, 
ESPECIALLY ON QUESTIONS PEBTAINING TO 

PUBLIC ECONOMY; 

AND OF HIS SYMPATHETIC AND INTELLIGENT INTEBEST IN 
THE WELL-BEING OF 

THE WORKING CLASSES. 



PREFATORY NOTE. 



The final volume will cover the period from the opening of 
the civil war, in 1860, to the refunding of the national bonds, 
in 1881. The preparation of it is well advanced, and the 
author expects to complete it by the end of next year. 

5 



CONTENTS. 

BOOK FIRST. 

FROM 1789 TO THE WAR OF 1812. 

Page 
CHAPTER I. 

Formation of the Treasury Department .... 3 

CHAPTER II. 
How the Accounts and Deposits were kept .... 14 

CHAPTER III. 
The Funding of the Revolutionary Debt .... 22 

CHAPTER IV. 
Payment of the Revolutionary Debt . .... 42 

CHAPTER V. 
Taxation of Imports 73 

CHAPTER VI. 
Internal Revenue 103 

CHAPTER VII. 
The First United-States Bank 127 

CHAPTER VIII. 
Coinage 156 

CHAPTER IX. 
Hamilton's Administration 175 

7 



ONTENTS. 

Page 
OHAPTER X. 

vW foemed and consteued . . 182 

CHAPTER XI. 
Appeopeiations and Expenditures, 1789-1800 . . . .191 

CHAPTER XII 
Appeopeiations and Expendituees, 1800-1812 . . . .203 



BOOK SECOND. 

FBOM THE OPENING OF THE WAB OF 1812 TO ITS 
CLOSE IN 1815. 

CHAPTER I. 
Wae-Loans 219 

CHAPTER II. 
Taxation 242 

CHAPTER III. 
The Goveenment, and the Cieculating Medium . . .261 

CHAPTER IY. 
Effect of the Wae on Manufactuees 284 

CHAPTER V. 

Administeation of the Teeasuby, feom Gaeeatin to 

Ceawfoed 294 



BOOK THIRD. 
FBOM THE CLOSE OF THE WAB IN 1815, TO 1860. 

CHAPTER I. 
Payment of the Funded Debt ....... 303 

CHAPTER II. 
The Second United-States Bank, and the Public Deposits 317 



CONTENTS. 9 

Page 
CHAPTEK III. 

Tariff Legislation, 1816-1824 359 

CHAPTEK TV. 
Tariff Legislation, 1824-1832 375 

CHAPTEK V. 
Tariff Legislation, 1832-1842 413 

CHAPTEK VI. 
Tariff Legislation, 1842-1846 . . . . . . .434 

CHAPTEK VII. 
Tariff Legislation, 1846-1860 449 

CHAPTER VIII. 
The Tonnage Revenues . 467 

CHAPTER IX. 
Warehousing and Drawbacks 478 

CHAPTEK X. 
Collection of Duties 486 

CHAPTER XI. 
\ Coinage 502 

CHAPTER XII. 
t Appropriations and Expenditures, 1815-1828 .... 518 

CHAPTER XIII. 
- Appropriations and Expenditures, 1828-1840 . . . .538 

CHAPTER XIV. 
Accounting 567 

CHAPTER XV. 

Appropriations and Expenditures, 1840-1860 . . . .576 



BOOK I. 

FROM 1789, TO THE WAR OF 1812. 



FINANCIAL HISTORY 



OF 



THE UNITED STATES. 



CHAPTER I. 

FOEMATION OF THE TKEASUEY DEPAETMENT. 

The independence of the American Republic had been 
acknowledged by the nations of the earth. From neces- 
sity a written constitution had been adopted. These were 
great achievements truly, and well might the people 
believe in their capacity to deal successfully with any 
future political problem. But to organize and maintain 
the government was an undertaking scarcely less perilous 
than the great feats which they had just performed. By 
a seven-years' war the people had won independence ; six 
years of agitation had brought forth an admirable consti- 
tution ; but a hundred anxious years were to pass before 
national security was established. 

The first Congress convened in New York. Without 
delay the members engaged in the work of creating the 
state, war, and treasury departments. A discussion was 
kindled over Gerry's suggestion, that the latter depart- 
ment be placed under the control of a board of com- 

3 



4 FINANCIAL HISTORY OF THE UNITED STATES. [1789. 

missioners. Gerry was afraid to intrust so much power 
to one individual. But only a few members agreed with 
him. Most of them contrasted the administration of 
financial boards under the old government with the 
administration of Morris, to the obvious disadvantage 
of the former. Gerry himself had served as a member of 
one of those boards : he knew how inefficient they were, 
and had often spoken frankly about the way they man- 
aged the public business. The debate, though lasting 
several days, was very one-sided; and Congress wisely 
determined to appoint one person who alone should be 
responsible for administering the finances, and who should 
singly reap the glory, or incur the displeasure and shame, 
attending his official action. 

Another question, of less importance, though worth 
notice, was raised over that portion of the committee's 
report establishing the treasury department, which re- 
quired the secretary " to digest and report plans for the 
improvement and management of the revenue, and the 
support of the public credit." There was no hesitation 
in requiring him to prepare estimates of the public re- 
ceipts and expenditures ; but to go farther was regarded 
by many as a dangerous exercise of power. It was feared 
that members might be led, by the deference often paid 
to one who makes a special study of a subject, to sup- 
port the plans of the secretary even against their own 
judgment. Perhaps the mischief would not stop here : it 
might spread until all the ministers were admitted on the 
floor to explain their plans, thus laying the foundation 
for an aristocracy or a detestable monarchy. Although 
these sentiments were not shared by all the members 



1789.] FORMATION OF THE TREASURY DEPARTMENT. 5 

of the House, yet the report was so modified, that the 
secretary was simply required "-to digest and prepare 
plans," thus leaving the question how they should be 
reported to the future determination of Congress. 

When the secretary had prepared his first report, which 
contained a plan for supporting the public credit, he 
inquired whether Congress would receive the report 
orally, or in writing. Some members said the subject 
was so difficult, that a written report could be more per- 
fectly mastered : others contended that inquiries would be 
necessary, and that the secretary ought to be present to 
answer them. It was resolved to receive the report in 
writing, and the precedent thus established has always 
been followed; though it may be seriously questioned, 
whether, if the secretary were allowed to explain his 
reports, and required to answer questions put to him 
orally in the House in regard to them, more light would 
not be cast on the treasury business, and greater watch- 
fulness and wisdom be displayed in conducting it. 

The Act establishing the treasury department provided 
for the appointment of a secretary (who was to be the 
head of the department), and also for an assistant to the 
secretary (who was to be appointed by the secretary 
himself), a comptroller, an auditor, a treasurer, and a 
register. 

The secretary was required to digest and prepare plans 
for the improvement and management of the revenue and 
for the support of the public credit; to prepare and re- 
port estimates of the public revenue and the public expen- 
ditures ; to superintend the collection of the revenue ; to 
decide on the forms of keeping and stating accounts, and 



6 FINANCIAL HISTORY OF THE UNITED STATES. [1789. 

making returns, and to grant, nnder prescribed limitations, 
warrants for drawing money from the treasury, and, in 
relation to the sale of the public lands, to do whatever 
Congress might require of him ; to report and give infor- 
mation to either branch of the Legislature, in person or in 
writing, respecting all matters referred to him by either 
body, or which should appertain to his office ; and also to 
do such other services relating to the finances as Congress 
should direct. 

The Act also prescribed the duties of the comptroller, 
treasurer, auditor, and register. None of these officers 
were to be concerned, either directly or indirectly, in 
commerce, vessels, public lands, or other public property, 
or purchase or dispose of any public securities of any 
State, or of the United States, or reap any gain for trans- 
acting the public business. 1 The clerks in the several 
departments were appointed by their respective chiefs. 2 

For the head of the treasury department, Hamilton 
was wisely chosen. Though only thirty-two years old, 
public opinion had marked him for the place and the 
hour. He possessed pre-eminent genius for organization, 
for creation. Morris had long before discovered these 
qualities in him. The position was indeed an arduous one. 
The old board of the treasury had not done any thing 
toward ascertaining the nature and amount of the pub- 
lic debt ; a revenue system was to be created ; the public 
indebtedness was to be ascertained, and provision made 
for its payment, beside organizing all the machinery of 
the treasury department for collecting and disbursing 

i Act, Sept. 2, 1789, 1 Cong., first session, chap. 12. 
2 Act, Sept. 11, 1789, 1 Cong., first session, chap. 13. 



1789.] FORMATION OF THE TREASURY DEPARTMENT. 7 

the public revenues. 1 How he fulfilled the duties of his 
position " the whole country perceived with delight, and 
the world saw with admiration. He smote the rock of 
the national resources, and abundant streams gushed 
forth. He touched the dead corpse of the public credit, 
and it sprung upon its feet. The fabled birth of Minerva 
from the brain of Jove was hardly more sudden or more 
perfect than the financial system of the United States as it 
burst forth from the conception of Alexander Hamilton." 2 

John Eveleigh of North Carolina was appointed comp- 
troller, and Oliver Wolcott of Connecticut auditor. Ill 
health soon caused Eveleigh to retire, and Wolcott was 
promoted to the vacancy. 

The war department was established a few clays earlier 
than the treasury department ; but the law was enacted 
so hurriedly, that no provision was made for the disburse- 
ment of funds appropriated to it, or for the settlement of 
its accounts. The treasury department collected the 
public funds, and accounted for them : the war depart- 
ment was solely one of expenditure. The secretary of 
war ought to have been authorized to draw from the 
treasury the sums appropriated for the use of his depart- 
ment, and to have been solely responsible for the expendi- 
ture of them. The secretary of the treasury ought to 
have had no concern with the war department, except 
giving warrants for the moneys thus appropriated. Such 
warrants would have been an acquittal to the treasury 

1 The old board, too, had bequeathed to the treasury department a 
vast chaotic mass of accounts which had accumulated under the Confed- 
eration. — Gibbs's Administrations of Washington and Adams, vol. i. p. 28. 

2 Webster's Speeches, vol. i. p. 199. 



8 FINANCIAL HISTORY OF THE UNITED STATES. [1789. 

department and a charge against the secretary of war. 
The accounts relating to their expenditure, made under 
his sole direction, and finally adjusted by the auditor and 
comptroller of the treasury, would have constituted his 
acquittal. Thus the responsibility of each department, as 
well as its operations and accounts, would have been dis- 
tinct and complete. 

Instead of adopting this plan, the duties of the two de- 
partments in expending money for the military and naval 
service were blended, and the part allotted to each depart- 
ment was not very precisely defined. It may be remarked, 
however, that all contracts for rations, clothing, and maga- 
zine supplies, were made at the treasury ; while all expendi- 
tures for other objects were made by the secretary of war. 

In this manner the business was conducted until 1792, 
when the office of " Accountant for the War Department " 
was created. He was charged "with the settlement of 
all accounts relative to the pay of the army, the subsist- 
ence of officers, bounties to soldiers, the expenses of the 
recruiting-service, and the incidental and contingent ex- 
penses of the department." Two other features of the 
Act require mention. The first was, all contracts and 
purchases for supplying the department of war were to 
be made by the treasury department. The other feature 
was, all expenditures for the pay of the army, the sub- 
sistence of officers, bounties to soldiers, the expenses of 
the recruiting-service, and the incidental and contingent 
expenses of the war department, were to be made by the 
secretary of war, the money to pay therefor having pre- 
viously been ordered from the treasury. 1 

1 Act, May 8, 1792, 2 Cong., first session, chap. 37. 



1789.] FORMATION OF THE TREASURY DEPARTMENT. 9 

In consequence of this legislation, the expenditures of 
the war department fell under two general divisions, — 
those for supplies of all kinds, and those for services 
and contingent expenses. The expenditures of the first 
class were neither controlled by the secretary of war, 
nor did he account for them : they were put under the 
management of the treasury department. The business 
was conducted in the following manner: the secretary 
of war informed the secretary of the treasury by letter 
what supplies were needed by his department, when and 
where they were wanted, and in some cases furnished 
the necessary samples, patterns, forms, and models. The 
secretary of the treasury complied with the demand of 
the war department to the extent of the appropriations 
authorized ; the purveyor of public supplies, whose office 
was created by a subsequent Act, executing the demand 
under the secretary of the treasury's direction. 

At that time two modes of procuring supplies were 
employed by the treasury, — contract and purchase. The 
contracts were of two descriptions, — the larger, such as 
those for clothing and provisions, which were executed 
by the secretary of the treasury himself, and distinct 
accounts of which were opened in the public books ; and 
the smaller contracts, such as those for occasional sup- 
plies, which were concluded by the purveyor, and com- 
prised in the general settlement of his accounts. Pur- 
chases of supplies, when they could be effected at the 
seat of government, were made by the purveyor ; and 
this was his chief employment. For purchases in the 
country, and for procuring occasional supplies at mili- 
tary and recruiting posts, the secretary of the treasury 



10 FINANCIAL HISTORY OF THE UNITED STATES. [1789. 

employed the agency of the supervisors and the collect- 
ors of the customs. 

The accounts of the purveyor, and of all agents and 
contractors who procured or furnished supplies, were set- 
tled at the treasury, without any agency or interference 
of the war department. They passed first under the 
examination of the auditor, who reported them to the 
comptroller, whose decision was final. 

When supplies were procured and delivered on requi- 
sitions of the war department, they became subject to 
the disposal of the secretary of war ; and the duty and 
responsibility of the secretary of the treasury ceased. 

The second class of expenditures in the department 
of war — those for services and contingent expenses, 
including the pay of the army, subsistence of the officers, 
bounties, recruiting, protection of the frontiers, etc. — 
were made under the sole direction of the secretary of 
war. The money for these objects was drawn from the 
treasury in the following manner : the secretary of war 
addressed a letter to the secretary of the treasury, re- 
questing an advance of money to the treasurer of the 
United States in his capacity as treasurer for the war 
department. The letter specified the sum wanted and 
the head of the appropriation under which it was to be 
applied. The secretary of the treasury complied with 
the request to the extent of the appropriation made for 
that purpose. A warrant for the sum, signed by the 
secretary, countersigned by the comptroller, and record- 
ed by the register, was drawn on the treasurer of the 
United States in favor of himself as treasurer for the war 
department. When the warrant was paid, the amount 



1789.] FORMATION OF THE TREASURY DEPARTMENT. 11 

was charged to the war department in the books of the 
treasury, and from that time remained subject to the dis- 
posal of the secretary of war, who drew it, as occasion 
required, by warrants signed by himself, and counter- 
signed by the accountant. The latter officer kept an 
account of all these warrants, and to him every account 
for the expenditure of money drawn under them was 
rendered in the first instance. He adjusted them, and 
reported them, like all other accounts of public expendi- 
ture, to the auditor of the treasury. From him they 
passed to the comptroller, whose action was conclusive. 

In the latter branch, therefore, of the expenditures for 
the department of war, the control and responsibility of 
that department were complete, and the accounts were 
susceptible of a clear and distinct division and adjust- 
ment. The secretary of war drew from the treasury 
the moneys appropriated by law, expended them, and 
accounted for them. 1 But in the other branch of expen- 
ditures — those which related to supplies for the use of the 
war department — there was a divided, and consequently 
an imperfect, responsibility. The secretary of war judged 
what supplies were necessary ; but instead of purchasing 
them, and drawing money from the treasury to pay for 

1 In expending them, and accounting therefor, the accountant of the 
department was the agent of the secretary, and made up and stated his 
accounts, and submitted them, with the vouchers belonging to them, to the 
auditor and comptroller of the treasury, who settled them like the accounts 
c-f all other persons intrusted with public money. The secretary of the 
treasury had no further concern in the business* than to pay to the secre- 
tary of war the moneys appropriated by law for that department. In 
respect to this class of expenditures there was a perfect responsibility in 
each department, — in the treasury, for its payment; in the other, for its 
expenditure. 



12 FINANCIAL HISTORY OF THE UNITED STATES. [1789. 

them, he informed the secretary of the treasury what was 
wanted, and he procured them. Thus the former officer 
was responsible for making known the need of supplies ; 
and the latter officer, for their quality, price, and delivery. 
The moneys thus appropriated for the war department 
were expended by the secretary of the treasury, who was 
converted, with respect to these expenditures, into a sub- 
ordinate agent of the department of war. The supplies 
were purchased for one purpose, and charged to the corre- 
sponding head of appropriation. When placed in the 
public stores, they were found useful for another purpose, 
and were accounted for under another head. The sec- 
retary of war, who used them, did not know to what 
account they were charged; and the secretary of the 
treasury, who purchased and charged them, did not know 
for what purpose they were used. Hence there resulted 
an endless confusion and uncertainty in the accounts ; and 
the apprehended difficulty to ascertain what expenses 
were incurred for any particular branch of the military 
service often changed into an impossibility. 1 

When the navy department was created, the same 
state of things existed therein for a time. At last a new 
arrangement was devised for obviating the difficulties 
described, which was as simple as it was effective. This 
consisted in endowing the secretaries of war and of the 
navy with the same powers and responsibilities with 
respect to expenditures for supplies as the former already 
possessed with respect to expenditures for services. The 
office of accountant for the navy department was estab- 

1 Harper's Report on Expenditures of the Ex. Departments, July 5, 
1798, 1 Finance, p. 590. 



1789.] FORMATION OF THE TREASURY DEPARTMENT. 13 

lished ; the purveyor of supplies was put under the direc- 
tion of the navy and war departments ; and the money 
appropriated for each department was thereafter accounted 
for under such separate heads of appropriation as con- 
veyed a clear idea of the amount expended in each de- 
partment of the public service. 1 

i Act, July 16, 1798, 5 Cong., second session, chap. 85. 



14 FINANCIAL HISTOKY OF THE UNITED STATES. [1789. 



CHAPTER II. 

HOW THE ACCOUNTS AND DEPOSITS WEEE KEPT. 

Before tracing the laws enacted for funding and 
paying the public debt, we shall describe how Hamilton 
kept the public accounts and deposits. If this, as well 
as the preceding chapter, seem uninviting to the reader, 
let him be assured that neither could be omitted in a 
fairly rounded history of the national finances. 

When the new government was fairly launched, it 
collected an income from imports and tonnage, spirits 
distilled within the United States, from fines, penalties, 
and forfeitures, domestic and foreign loans, revenues of 
the post-office, duties on patents, coined cents, and debts 
from individuals. 

The duties on imports and tonnage were received by 
the collectors of customs. The duties on spirits distilled 
within the United States were received by collectors of 
divisions into which the country was divided, who paid 
them to the inspectors of surveys, by whom they we*re 
paid to the supervisors of districts. The fines, penalties, 
and forfeitures incurred, were received by the marshals, 
who paid them to the collectors of customs and to the 
supervisors of districts, except those incurred for crime 
against the United States, which were sent by the mar- 
shals directly to the treasury. The domestic loans, duties 



1789.] HOW ACCOUNTS AND DEPOSITS WERE KEPT. 15 

on patents, and debts from individuals, were paid into the 
treasury without any intermediate agency. Foreign loans 
were received by the bankers abroad under whose imme- 
diate agency they were made. The revenue of the post- 
office was received by the deputy postmasters, who paid 
it to the postmaster-general ; and the coined cents were 
received by the treasurer of the mint. 

The treasurer was the medium of all receipts and 
disbursements of public moneys. All receipts and dis- 
bursements must be sanctioned by warrants drawn on 
and in favor of that officer. These warrants were signed 
by the secretary of the treasury, countersigned by the 
comptroller, and registered by the register. Warrants 
for receipts required an acknowledgment of the treasurer 
in order to discharge the payer; and warrants for dis- 
bursements required an equivalent acknowledgment by 
the person receiving them to discharge the treasurer. 

Five modes were adopted in regard to receipts, each of 
which may be briefly explained. The first mode was for 
the treasurer to draw bills or drafts, under the special 
direction of the secretary of the treasury, on those who 
had public funds in their hands. Such drafts, before 
leaving the treasurer, were registered and countersigned 
by the register of the treasury, or by a confidential clerk 
designated for that purpose. This mode applied to money 
drawn from other countries, as well as to money accruing 
in the United States, except that foreign bills were always 
countersigned by the register himself. 

The second mode was by making deposits in the several 
banks by a general order of the secretary of the treasury. 
As soon as they were made, they were passed by the banks 



16 FINANCIAL HISTORY OF THE UNITED STATES. [1789. 

to the credit of the treasurer. The officer making the 
deposits — who was either a supervisor of the revenue, 
or a collector of the customs — took duplicate receipts 
from the bank, one of which he immediately sent to the 
treasury, while retaining the other. The bank also made 
weekly returns, — one to the secretary of the treasury, 
another to the treasurer, — specifying the persons making 
the deposits and the amount of them. 

The third mode was by remittances of the supervisors 
and collectors to the treasurer. These were generally 
made in bank-bills, though sometimes in bills or orders 
on individuals : in some cases, however, they were made 
in mutual credits and in specie. Another mode was by 
special direction from the secretary of the treasury to 
the supervisors and collectors of the customs to make 
advances, provisionally, for certain specified purposes; 
and the last mode was by warrants on persons in favor 
of the treasurer. 

The first four modes of remitting money to the treasury, 
in the end- were resolved into the mode last described. 
All advances and payments were always sanctioned by 
warrants. No party who paid money could be discharged, 
save by a warrant receipted by the treasurer. Bills or 
drafts drawn by him were either deposited in a bank, 
or remitted to certain public officers or agents, as the 
secretary of the treasury directed. 

In respect to disbursements, one mode was by warrants 
issued by the treasurer. This was the general method, 
and the invariable one when payments were made im- 
mediately at the treasury. The second mode was by 
drafts drawn by the treasurer, under special order of the 



1789.] HOW ACCOUNTS AND DEPOSITS WERE KEPT. 17 

secretary of the treasury, registered and countersigned 
by the register. The third mode was by a special order 
of the secretary of the treasury to the supervisors and 
collectors to make advances of money provisionally for 
certain specified purposes. These directions were never 
given with regard to any money which had passed to the 
credit of the treasurer. The last two modes were finally 
resolved into the first ; so that warrants finally issued for 
the sums paid either on the drafts of the treasurer, or 
under the direction of the secretary. These were the 
modes adopted by Hamilton for disbursing the public 
funds ; but in a very few instances there were some 
slight departures, which need not be described. 

The forms established for keeping the public accounts, 
therefore, were based on the following principles : no 
payment into the treasury was valid so as to justify a 
definitive credit to the payer, unless the treasurer's 
receipt was indorsed on a warrant in the creditor's favor, 
signed by the secretary of the treasury, countersigned 
by the comptroller, and recorded and attested by the 
register; and no payment from the treasury was valid, 
unless made in pursuance of a warrant on the treasury, 
signed by the secretary of the treasury, countersigned 
by the comptroller, and attested by the register. 1 

Such is the outline of the system adopted by Hamil- 
ton for receiving and disbursing the public funds. The 
preservation of the system, with only slight changes by 
every succeeding secretary, is proof of its excellence. 
It has withstood the test of a hundred years, and still 
remains not less effective than when first adopted. 

1 Baldwin's Report on Condition of the Treas. Department, May 22, 
1794, 1 Finance, p. 281. 



18 FINANCIAL HISTORY OF THE UNITED STATES. [1809. 

In the beginning, the public money was kept in several 
banks, thus continuing the usage established by the Con- 
federation. The treasurer himself never actually had 
any public money in his possession. It was, in fact, in 
a bank from the moment of receiving it until disbursed. 
The only exceptions were bank-bills, orders on individu- 
als, mutual credits, and specie remitted by the super- 
visors of the revenue and collectors of the customs to 
the treasurer. As soon as received, they were deposited 
in a bank to the credit of the treasurer. Nor did the 
secretary of the treasury, or any other officer of the treas- 
ury department, at any time have possession of public 
money, except in a few instances too unimportant to be 
mentioned. 

Previous to 1816 no law was enacted about the 
deposits, and the secretary of the treasury exercised his 
own authority in making them. 1 During the first three 
years of the government, the Bank of North America, 
which was now thriving under a charter from the State 
of Pennsylvania, was employed for that purpose. The 
banks of New York, of Massachusetts, and of Maryland, 
were next selected and used. When the United States 
bank was founded, in 1791, this was added to the num- 
ber. 2 From time to time deposits were placed in other 
banks. 3 In 1809 Congress required disbursing-officers 
to keep " the public moneys in their hands " in some 
" incorporate bank, whenever practicable," which was to 
be " designated for the purpose by the President of the 

1 Woodbury's Report on the Finances, September, 1837. 

2 Woodbury's Report on tbe Public Money, December, 1834. 

8 Gallatin's Report to tbe House, Dec. 23, 1806, 2 Finance, p. 216. 



1816.] HOW ACCOUNTS AND DEPOSITS WERE KEPT. 19 

United States." Nothing was said concerning the depos- 
its of collecting-officers. 1 

In February, 1811, just before the expiration of the 
charter of the United-States bank, and after Congress 
had refused to extend it, Gallatin, who was secretary of 
the treasury, selected other banks as public depositories. 
The only condition required of them in the beginning 
was, that, in making discounts, preference should be 
given to those having custom-house bonds to discharge. 
The reason for imposing this condition was a very just 
one. The closing of the United-States bank and its 
branches would doubtless cause a pressure on other bank- 
ing-institutions for pecuniary assistance. Of course, it 
was of primary importance to the government to collect 
its revenue with facility : consequently Gallatin exacted 
this requirement, so that the government might not 
suffer from the sudden dissolution of the national bank. 
Afterward the secretary required from each bank a 
monthly statement of its condition. 2 By order of the 
President the same banks were used by collecting as 
well as by disbursing officers. 

The deposits were kept in this way until 1816, when 
the second United-States bank was founded. Its charter 
provided, " that the deposits of the money of the United 
States, in places in which the said bank and branches 
thereof may be established, shall be made in said bank 
or branches thereof, unless the secretary of the treasury 
shall at any time otherwise order and direct; in which 
case, the secretary of the treasury shall immediately lay 

1 Act, 10 Cong., second session, chap. 28. 

2 Gallatin's Report on Public Deposits in Banks, Jan. 13, 1812. 



20 FINANCIAL HISTORY OF THE UNITED STATES. [1816. 

before Congress, if in session, and, if not, immediately 
after the commencement of the next session, the reasons 
of such order or direction." 1 

The secretary of the treasury, therefore, retained dis- 
cretionary power in keeping the public deposits. This 
power was exercised, to a limited extent, during the next 
three years ; but in 1832 he employed it in a terrific 
manner. He removed all the deposits from the National 
bank, and put them in State banks. Their removal fired 
the entire country with intense excitement, which burned 
for a long period with undiminished fury. Even when the 
excitement ceased, the evil consequences of the act con- 
tinued, like the billows of the Atlantic, which heave and 
roll long after the storm which set them in motion has 
passed away. 

The money received by the government in the be- 
ginning consisted of bank-notes and specie. Hamilton 
instructed the collectors of customs to receive certain 
State-bank notes, payable near the seat of government, 
and to credit them as cash, when forwarded by mail, or 
otherwise, to the treasurer. When the United-States 
bank was organized in 1791, its notes were accepted as 
equivalent to specie by the government : so were the 
notes of the second United-States bank. This action 
by Hamilton and his successors was apparently sanc- 
tioned by Congress in 1816. After that time deposits 
were made in specie, or bills of the United-States bank, 
or of such other specie-paying banks as the government 
depositors were willing to receive at par, and credit as 
cash. The practice of receiving bills on special deposit, 

i Sect. 16. 



1817.] HOW ACCOUNTS AND DEPOSITS WERE KEPT. 21 

which was commenced in 1814, and continued for four 
years, was discontinued in 1818; and payments thereafter 
were made in specie or its equivalent. 1 

The government sustained no losses from the employ- 
ment of the National banks as depositories. The State 
banks employed after 1817 were less faithful. 2 During 
the succeeding seventeen years, the losses exceeded one 
million dollars from employing them ; although the second 
United States bank flourished nearly the whole period, 
and kept most of the deposits. 3 

1 Woodbury's Annual Report, December, 1834. 

2 Woodbury's Report on the Public Money, December, 1834. " Not a 
single selected State bank failed between the expiration of the old charter 
and the grant of the new one." — Woodbury. 

3 Woodbury's Annual Report, December, 1838. 



22 FINANCIAL HISTORY OF THE UNITED STATES. [1789. 



CHAPTER III. 

THE FUNDING OF THE REVOLUTIONARY DEBT. 

Perhaps the gravest subject that ever confronted Con- 
gress was the Revolutionary debt. The more thoughtful 
political leaders felt that the destiny of the republic 
would turn upon the plans adopted for determining the 
amount, and providing for its payment. No one saw 
more difficulties than Hamilton, yet he was confident of 
finding a safe path for the nation. Nor was his faith, 
begotten by a profound study of the subject, shared by 
him alone. When President Washington was once con- 
versing with Robert Morris about the condition of the 
finances of the country, he inquired, " What are we to do 
with this heavy debt ? " To which Morris replied, " There 
is but one man in the United States who can tell you : 
that is Alexander Hamilton." 1 Doubtless Morris's reply 
was still fresh in Washington's mind when selecting 
Hamilton for chief of the treasury department. 

Soon after the first convening of Congress, the House 
instructed Hamilton to prepare a report on the public 
debt for presentation at the next session. The subject 
was vast and intricate : nevertheless, the clear eye of 
Hamilton was able to pierce through it, and discover the 
true principles of settling the multifarious obligations 

1 Hamilton's Hist, of Republic, vol. iv. p. 30. 



1789.] FUNDING OF THE REVOLUTIONARY DEBT. 23 

of the government, and also of providing for their pay- 
ment after the amount should be determined. 

The public indebtedness was of two kinds, — foreign 
and domestic. The foreign creditors were France, Hol- 
land, and Spain. The amount due to each government 
was clearly known ; and no one thought of repudiating, or 
changing the terms of, the several contracts under which 
the loans had been made. A small sum also was due to 
foreign officers who had served in the war for independ- 
ence. 

The domestic indebtedness was composed of three 
branches. In the first place may be mentioned the 
obligations incurred directly by the government. These 
consisted original^ of loan-office certificates, amounting 
nominally to $67,189,816.15. Certificates also had been 
given to persons from whom supplies had been seized for 
the use of the army ; and other certificates had been 
given by commissioners in settlement of claims and to 
soldiers. To these must be added bills of credit, and 
indents given for interest accruing on loan-office certifi- 
cates and the other certificates just mentioned. Lastly 
there was the " registered debt," as it was called, consist- 
ing of certificates issued by the register of the treasury in 
lieu of other obligations. 

A very considerable portion of this indebtedness had 
been transferred by the original holders at varying dis- 
counts to other persons; and one of the first questions 
started was, Should the present holders be paid the face- 
value of the debts thus purchased, or only what they 
had paid with interest? From this question sprung an- 
other; namely, whether the difference between the two 
sums ought not to be paid to the original holders. 



24 FINANCIAL HISTORY OF THE UNITED STATES. [1790. 

These questions were warmly debated in Congress, 
and outside by the people. "An American Farmer" 
exclaimed, " Can it be thought reasonable or just that 
the assignee should now be entitled to that which the 
assignor honorably relinquished to the distressed state 
of the country? Must it not rather be regarded as the 
most atrocious act of iniquity and injustice that ever 
disgraced the annals of civil society, that, to secure the 
full payment of the debt to the assignee, a funding-sys- 
tem should take place by which the original creditors and 
their posterity will become the hewers of wood and the 
drawers of water to- a foreign moneyed interest?" 1 

Hamilton had reasoned with consummate ability in 
favor of executing the contracts of the government with- 
out reference to their transfer from one person to another. 
The majority of Congress agreed with him ; although there 
were strong minds who thought otherwise, among whom 
were Madison and Jefferson. Public opinion, however, 
though not united strongly, coincided with the Hamil- 
tonian view. 2 

The following plan was devised for funding this portion 
of the public debt. A loan was to be opened by the 
secretary of the treasury, at the treasury office, and by 
commissioners appointed for that purpose, in each State. 

1 Letters addressed to the Yeomanry of U. S., p. 7. 

2 Witherspoon wrote to Hamilton, "We have still an idea, meeting us 
in conversation and publication, that a discrimination must be made 
between original creditors, and speculators as they call them. Discrimi- 
nation is totally subversive of public credit. Such a thing registered and 
believed on the exchange of London would bring the whole national debt 
to the ground in two hours." —Hamilton's Hist, of Bepublic, vol. iv. p. 74, 
note. 



1790.] FUNDING OF THE REVOLUTIONARY DEBT. 25 

The loan was to be large enough to include the whole 
of this portion of the public debt. The holders were 
allowed to subscribe for the loan, and pay therefor in the 
evidences of debt they held against the government at 
their specie value, except that the Continental money was 
to be received at the rate of one hundred dollars in bills 
to one in specie. The subscribers were to receive for the 
principal due to them stock for two-thirds of the princi- 
pal, bearing six per cent interest, payable quarterly, the 
government having the right to redeem two per cent of 
the stock every year if it desired, though under no obli- 
gation to do this. For the remaining one-third of the 
principal due to the subscribers, they were to receive the 
same amount of stock, bearing six per cent interest after 
the year 1800, and redeemable on the same terms as the 
other stock received for the two-thirds of the principal. 

With respect to funding the interest due to this class of 
creditors, it was to be reckoned on their various claims to 
Dec. 1, 1790, and certificates were to be given therefor, 
bearing three per cent interest, and redeemable whenever 
the government should make provision for that purpose. 
To persons holding indents taken for interest due on 
loan-office certificates and other obligations, similar cer- 
tificates were to be given as those last mentioned. 

Another portion of the public debt, which had been 
incurred by the States for carrying on the war, Hamilton 
maintained the government ought »to assume. 

The controversy with respect to assuming it was bitter 
and prolonged , but the view of the secretary finally pre- 
vailed, after a hard struggle, by a majority of only two 
votes. The Southern members were the chief opponents, 



26 FINANCIAL HISTORY OF THE UNITED STATES. [1789. 

and some of them were persuaded to yield by a concession 
on the part of Northern members concerning the final 
location of the capital. Thus was the national honor 
saved, and the capital located on the banks of the 
drowsy Potomac. 

The indebtedness incurred by the States was very varied ; 
and in some cases the accounts were so confused, that it 
was impossible to find out the exact amount expended 
for war purposes. One form of indebtedness, however, 
was common to all of them ; namely, bills of credit of the 
new emission, for the payment of which the States were 
responsible. In regard to the other State obligations, 
they varied much in the several States. In Massachu- 
setts, for example, half-pay notes had been issued to the 
widows and orphans of deceased officers, and certificates 
for the interest due on them, beside balances stated from 
the books of the commissioners for settling with the Con- 
tinental army. The Connecticut debt consisted of notes 
payable to the army, and others issued by special Act of 
the Assembly, notes issued for remounting dragoons, new 
ones issued in place of old notes reloaned, certificates for 
interest on State debt, unpaid balances of orders payable 
from a specific tax, State bills emitted in 1780, pay-table 
orders, and old emissions created before the war. In 
New York the debt was composed of certificates for money 
loaned by individuals, horse notes, notes issued for pay 
and for depreciation of pay and pensions, certificates for 
the payment of levies and militia, for claims on forfeited 
estates, and bills of credit. In New Jersey certificates 
were also given for depreciation of pay , and the county 
commissioners had issued certificates for military services. 



1789.] FUNDING OF THE REVOLUTIONARY DEBT. 27 

Another kind of certificates had been granted for demands 
against forfeited estates. In Virginia was the army debt, 
also that of the loan-office certificates for paper money 
funded, balances to foreign creditors, beside numerous 
land-warrants, which in many cases had been given for 
the same tract of land. The debt of South Carolina was 
reduced to a more systematic form, and consisted of prin- 
cipal and special indents and a foreign debt. The indebt- 
edness of the other States had spread out in many ways, 
some of which were so dark and crooked, that it was quite 
impossible to go far in them without getting lost. 1 It was 
this confusion of the State finances which led Fisher 
Ames to remark, "We perceive a great unavoidable 
confusion throughout the whole scene, presenting to the 
imagination a deep, dark, and dreary chaos, impossible to 
be reduced to order without the mind of the architect is 
clear and capacious, and his power commensurate with the 
occasion." The financial condition of our country was 
not unlike that of France after the death of Louis XIV., 
when it is said that only the most vague notions prevailed, 
even among financiers, of the nature and amount of the 
public indebtedness. 

The aggregate debt of the States, whiph had been in- 
curred in sustaining the common cause against Great 
Britain, was supposed to be twenty-five million dollars. 
Twenty-one millions and a half were assumed as the 
amount expended ; and Congress proposed to issue a 
loan for this sum, to which the States might subscribe, 
paying therefor in certificates or notes issued by them 
for debts contracted prior to the 1st of January, 1790. 

1 Schedule E, appended to Hamilton's Report on the Public Credit. 



28 FINANCIAL HISTORY OF THE UNITED STATES. [1790. 



The amount of the subscription of each State was limited 
as follows : — 



New Hampshire 
Massachusetts 
Rhode Island 
Connecticut . 
New York 
New Jersey . 
Pennsylvania 
Delaware . . 



$300,000 
4,000,000 

200,000 
1,600,000 
1,200,000 

800,000 
2,200,000 

200,000 



Maryland . . 
Virginia . . 
North Carolina 
South Carolina 
Georgia . . 



Total . 



$800,000 
3,500,000 
2,400,000 
4,000,000 
300,000 

$21,500,000 



The Act provided, that, if the total amount sub- 
scribed by any State exceeded the sum specified therein, 
a similar percentage should be deducted from the claims 
of all subscribers. Four-ninths of the stock issued 
by the government for this loan bore interest at six 
per cent, beginning with the year 1792 ; one-third bore 
three per cent interest, beginning at the same time , 
and the balance, two-ninths, bore six per cent interest 
after the year 1800. The latter kind of stock was to 
be redeemed whenever provision was made for that pur- 
pose. And, with respect to seven-ninths of the stock, 
the government was at liberty to pay two per cent an- 
nually if it desired ; but no imperative obligation was 
created to pay it. 

Nor did the government forget to provide, that, in case 
a State did not subscribe for the whole amount to which 
it was entitled, interest should be paid on the balance, in 
trust for its creditors. This undertaking was to be ex- 
ecuted until there should be a settlement of accounts 
between the government and the different States. More- 
over, each State was made a debtor to the government for 



1790.] FUNDING OF THE REVOLUTIONARY DEBT. 29 

the amount subscribed and paid. Thus the creditors of 
the several States were to be paid by the government; 
and the States were to become indebted to it, and cease 
to be debtors to individuals. 1 

There yet remained a third kind of domestic indebted- 
ness existing between the States and the government. 
The former had advanced money to the government, and 
the latter had advanced money to the States. It was 
necessary to adjust these advances in order to distribute 
fairly the burden which each State ought to bear. Three 
commissioners were appointed to examine the claims, 
which were to be presented before the 1st of July, 1791, 
" and to determine on all such as should have accrued for 
the general or particular defence during the war, and on 
evidence thereof, according to the principles of general 
equity, so as to provide for the final settlement of all 
accounts between the United States and the States indi- 
vidually." They were to debit the States with advances 
made to them, with interest thereon to the beginning of 
the year 1790, and to credit them with disbursements and 
advances, with interest to the same period ; and, having 
struck the balance due to each State, were to find the 
aggregate of all the balances, which was to be apportioned 
among the States. The rule for apportioning the aggre- 
gate of the balances was to be the one prescribed in the 
National Constitution "for the apportionment of repre- 
sentation and direct taxes," as fixed by the first census. 
The difference between the apportionments and the re- 
spective balances was to be carried in a new account to 

1 Act, Aug. 4, 1790, 1 Cong., second session, chap. 34. 



30 FINANCIAL HISTORY OF THE UNITED STATES. [1790. 

the debit or credit of the States respectively, as the case 
might be. 1 

Such were the forms of the national domestic indebted- 
ness, and the plan adopted for funding it. The plan, in 
every essential feature, was the work of Hamilton. Con- 
gress made some clumsy alterations, but Hamilton might 
well rejoice because his plan had not been more disfigured. 

When Hamilton presented his first report, the debt of 
the United States, as nearly as could be ascertained, was 
as follows : — 

Foreign debt, principal .... $10,070,307 00 
Foreign debt, interest 1,640,071 62 

$11,710,378 62 



Domestic debt, principal .... $27,383,917 74 
Domestic debt, interest . . . . 13,030,168 20 



$40,414,085 94 



State debt, ascertained .... $18,201,205 60 
State debt balance, estimated . . . 6,798,794 40 



$25,000,000 00 



No creditor was compelled to subscribe to the loan : 
subscribing was purely voluntary. Indeed, the entire 
landing-scheme was only a proposal by the government 
to its creditors. If they rejected It, their claims were not 
to be ignored. On the other hand, (Tongress provided 
that nothing in the Funding Act should be^cPnstrued " in 
any wise to alter, abridge, or impair the rights of those 

creditors of the United States " who should not subscribe 

] 

1 Act, Aug. 5, 1790, 1 Cong., second session, chap. 38. The follow! ing sup- 
posititious statement of accounts between the United States and individual 






1790.] 



FUNDING OF THE REVOLUTIONARY DEBT. 



31 



to the loan, " or the contracts upon which their respective 
claims were founded." The non-subscribing creditors were 
to receive during the year 1791 " a rate per centum on 
the respective amounts of their respective demands, in- 
cluding interest to the last day of the year, equal to 
interest payable to subscribing creditors," which was to 
be paid in the same manner. But as many of their cer- 
tificates were counterfeits, or had not " been liquidated to 
specie value," they were required to procure new ones 
before receiving payment of their interest. 1 

Thus, after a long and warm controversy, Congress 
launched a scheme for funding the public debt. It was 
not a perfect measure. Rarely does a piece of legislation 
exhibit perfect workmanship. Every law is the embodi- 
ment of a compromise of opinion on the part of the law- 
makers, and the Funding Act was not the product of any 
new method of legislation. It was merely the expression 
of the united judgment of a body of men, many of whom 

States was appended by Hamilton to his Report on Public Credit, illus- 
trating his plan for the payment of this portion of the public debt : — 



STATES. 


Ratio. 


Balance due 
to the States 
respectively. 


Proportion of 
each State of 
the aggregate 
of those bal- 
ances, accord- 
ing to the ratio. 


Balances 
against cer- 
tain States. 


Balances in 
favor of cer- 
tain States. 


New Hampshire 
Massachusetts 
Rhode Island 
Connecticut . 
New York . 
New Jersey . 
Pennsylvania 
Delaware . . 
Maiyland . . 
Virginia . . 
North Carolina 
South Carolina 
Georgia . . 








3 
8 
1 
5 
6 
4 

' 8 
1 
6 

10 
5 
5 
3 


$57,500 

180,000 

20,000 

110,000 

135,000 

72,500 

170,000 

30,000 

110,000 

187,500 

90,000 

87,500 

50,000 


$60,000 
160,000 

20,000 
100,000 
120,000 

80,000 
160,000 

20,000 
120,000 
200,000 
100,000 
100,000 

60,000 


$2,500 
7*,500 

io',6oo 

12,500 
10,000 
12,500 
10,000 


$20',000 

io',ooo 

15,000 

io'ooo 

10,000 




65 


$1,300,000 


$1,300,000 


$65,000 


$65,000 



1 Sec. Hamilton's Address to the Public Creditors, Works, vol. vi. p. 632. 



32 FINANCIAL HISTOEY OF THE UNITED STATES. [1790. 

yielded somewhat in order to accomplish something, 
though realizing the possibility of framing a wiser meas- 
ure. 

In Congress and elsewhere there were persons opposed 
to any plan of funding. 1 They feared that such an adjust- 
ment of the debt meant an indefinite prolongation in the 
payment of it. Had not this been the effect of funding 
the English debt? they said; and will not a similar effect 
attend the transplanting of the system to our shore? 
With every step forward in applying the principle of 
funding, their opposition increased, reaching its height 
when the funding of the indebtedness of the States was 
attempted. Opposition was then so strong as to jeopardize 
the success of the entire movement. When the smoke 
of the contest had cleared away, two political parties 
might be seen, whose opposition, though varying much in 
conviction, power, and earnestness, has never ceased. 

Some persons believed that funding was a great specu- 
lation, in which many who favored it expected to win 
fortunes by the rise in the value of the public debts. 
Jefferson plainly affirmed that the " greedy members " 
of Congress who voted for funding acted from self-inter- 
est. 2 A large portion of the debt had been sold by the 
original holders; and every creditor of the government, 

1 " The uniformity and certainty of the evils arising from public credit 
and funding systems, wherever introduced, manifest that we ought not to 
attribute such evils to any mismanagement of the agents, but to consider 
them as the unavoidable consequence of violating those laws of nature 
which God has ordered to regulate men in society, which, therefore, can- 
not be violated with impunity." — Letters addressed to the Yeomanry of U. S., 
p. 23. 

2 Remarks upon the Bank of the U. S., p. 7. 



1790.] FUNDING OF THE REVOLUTIONARY DEBT. 33 

doubtless, was heartily in favor of funding. 1 Others feared 
that it would cement the government too strongly and 
change it into an aristocracy. 2 

Indeed, the funding system was attacked so fiercely, that 
Hamilton was induced to write a vindication of it. " It 
is a curious phenomenon in political history," he remarks, 
"that a measure which has elevated the credit of the 
country from a state of absolute prostration to a state of 
exalted pre-eminence, should bring upon the authors of it 
obloquy and reproach. It is certainly what, in the ordi- 
nary course of human affairs, they could not have antici- 
pated." 3 

If the adoption of the funding system created some 
opposition, it was very slight compared with the joy expe- 
rienced generally by the people. The Ship of State had 
safely passed a dreaded bar, and the danger of shipwreck 
was over. 

Within two years after enacting the law, Hamilton gave 

1 An Inquiry into the Principles and Tendency of Certain Public Meas- 
ures, p. 46. 

2 Jefferson, who was a strong opponent of the bill, as he was of nearly 
every measure emanating from Hamilton, says, that "when the trial of 
strength had indicated the form in which the bill would finally pass, this 
being known within doors sooner than without, especially than to those 
who were in distant parts of the Union, the base scramble began. Couriers 
and relay-horses by land, and swift sailing-boats by sea, were flying in all 
directions. Active partners and agents were associated and employed in 
every State, town, and country neighborhood; and this paper was bought 
up at five shillings, and even as low as two shillings, in the pound, before 
the holder knew that Congress had already provided for its redemption at 
par. Immense sums were thus filched from the poor and ignorant, and 
fortunes accumulated by those who had themselves been poor enough be- 
fore." — Remarks, p. 7. An Inquiry, p. 42. 

8 Works, vol. vi. p. 640. 



34 FINANCIAL HISTORY OF THE UNITED STATES. [1790. 

an account of its operation. 1 The time limited by the 
Act for subscribing to the loan had expired, and the secre- 
tary joyfully announced the success of the plan. The sub- 
scriptions had amounted to $31,797,481.22. 2 The trustees 
of the sinking-fund had purchased 11,131,364.76 of the 
debt, because it could be done very advantageously to 
the government. The unsubscribed residue amounted 
to the sum of $10,616,604.65. Of this balance, $6,795,- 
815.26 consisted of registered debt and interest. This 
portion of the debt was chiefly held by foreign creditors, 
who had been somewhat tardy in sending their subscrip- 
tions. But extensive orders received from them since 
the expiration of the time limited for receiving the debt 
furnished ample proof of their desire to accept the pro- 
posal of the government. Consequently, Hamilton recom- 
mended an extension of the time for subscribing to the 
loan, which was granted. 

Another portion of the unsubscribed indebtedness con- 
sisted of outstanding .or floating evidences of debt, the 
amount of which the secretary estimated at $3,697,466.14. 
The chief part of this indebtedness was represented 
by loan-office certificates issued between Sept. 1, 1777, 
and March 1, 1778. Many of the holders had accepted 
the offer of the government, and had exchanged their 
certificates for stock; but some were dissatisfied. They 
maintained that the indebtedness of the government to 
them possessed a greater value than the indebtedness 

1 For "history of the discussion over this report, see Hamilton's Hist, 
of the Republic, vol. iv. pp. 371-382. 

2 For detailed statement of subscriptions, see Elliot's Funding System, 
p. 127. 



1790.] FUNDING OF THE REVOLUTIONARY DEBT. 35 

incurred at a later period, and consequently that they 
ought not to be compelled to exchange their old certifi- 
cates for new ones, as the Act provided, before receiving 
interest. Regarding the objection not wholly ill founded, 
Hamilton urged a slight modification in the funding-law, 
hoping to meet their wishes, and thus lead them to sub- 
scribe. It was therefore provided, that the creditors 
who had not subscribed to the loan should nevertheless 
receive the same interest on the sum due to them as other 
creditors had received to whom a similar sum was due ; 
thus placing the subscribing and the non-subscribing 
creditors upon the same level in receiving interest. The 
period for subscribing to the public stock was extended 
several times ; and in the end nearly every creditor sub- 
scribed. In 1817 the secretary of the treasury reported 
that the total amount of certificates of all kinds, including 
indents of interest- outstanding, was less than one hun- 
dred and sixty thousand dollars, nearly the whole of which 
had long been barred by statutes of limitation. 1 

The amount subscribed in the debts of the States, 
reported by Hamilton in February, 1793, was $17,072,- 
334.39. This was smaller than the amount assumed by 
$4,427,665.61. Several reasons existed for not subscrib- 
ing the balance. The first was, the sum assumed with 
respect to certain States exceeded the actual amount 
of their debts; secondly, in many instances a part of 
the existing debt was in such a form as to exclude it 
without violating the law; lastly, ignorance or forge tful- 
ness of the time limited for receiving subscriptions. 

1 The exact amount reported was $159,013.56. Crawford's communica- 
tion to the House, Jan. 9, 1817, 3 Finance, p. 150. 



36 FINANCIAL HISTORY OF THE UNITED STATES. [1790. 

Several of the States were desirous of having the time 
extended for receiving the debts included within the 
terms of the law, and with this desire Congress will- 
ingly complied. But when an effort was made to 
stretch the scope of the law far enough to include all 
the indebtedness incurred by the States for the common 
defence, instead of adhering to the arbitrary sum of 
$21,500,000, the majority of Congress would not consent. 
Hamilton urged the assumption of the entire amount 
with great force, and his recommendation was lost in 
the House by only a few votes. 

Obvious justice required the assumption of all the 
debts thus contracted. Congress, under the Confedera- 
tion, had repeatedly promised to do full justice to all 
the creditors and States ; and their successors had no 
right to repudiate the promise. The assumption of the 
claims of State creditors, to whom compensation was due 
for their efforts in aiding the common cause against Great 
Britain, was not so much an act of expediency as an 
act of open and express obligation. There was no honest 
way of escaping the fulfilment of it. Moreover, the 
States had granted the exclusive right to the government 
of collecting a revenue on imports, which was the richest 
source of public revenue. When the States relinquished 
the right of levying this tax, they expected that the 
government would relieve them from their obligations 
incurred for the general welfare. To appropriate the' 
richest fountains of taxation belonging to the States, 
and to refuse the assumption of their war obligations, 
was harsh treatment, and just ground for resentment. 

When this portion of the public indebtedness was 



1790. J FUNDING OF THE REVOLUTIONARY DEBT. 



37 



finally adjusted, the amount assumed for each State was 
as follows: — . 



New Hampshire 
Rhode Island 
Massachusetts 
Connecticut . 
New York . 
New Jersey . 
Pennsylvania 
Delaware . . 



$282,595 51 


200,000 00 


3,981,733 05 


1,600,000 00 


1,183,716 69 


695,202 70 


777,983 48 


59,161 65 



Maryland. . . . $517,491 08 
Virginia and Ken- 



tucky . . 
North Carolina 
South Carolina 
Georgia . . 

Total . 



2,934,416 00 

1,793,803 85 

3,999,651 73* 

246,030 73 

8,271,786 47 



Thus the amount assumed in the beginning proved suffi- 
cient to cover the indebtedness of all the States, except 
Rhode Island and Connecticut, under the regulations 
adopted for the admission of debts in favor of the 
States. 

In criticising the funding-system, Gallatin displayed 
greater acuteness than any other critic of the time. 
" Considering the assumption of State debts as intended 
solely for the purpose of doing equal justice to the 
several States by equalizing their accounts," he says, "it 
may be demonstrated, that had Congress waited until the 
settlement of accounts had taken place, before any State 
debts were assumed, they might have produced the same 
effect by an assumption, in favor of the creditor States, 
to the amount of 111,609,259.69, which has been pro- 
duced by the premature assumption of $21,789,370.47 j 1 
which have been actually assumed or funded in favor 
of the several States. That is to say, that the accounts 

1 This sum was composed of the amount finally assumed, $18,271,786.47, 
which the States had advanced, united to a "balance of $ 3,517,584 due to the 
States in their account with the government for money advanced. See 
No. xv. to Gallatin's Sketch of the Finances. 



38 FINANCIAL HISTORY OF THE UNITED STATES. [1790. 

of the Union with the individual States might have been 
placed in the same relative situation in which they now 
stand by assuming $10,180,110.78 less than has been as- 
sumed." 2 Such an adjustment would have equalized the 
burdens of the States among each other ; yet they would 
have been required to pay more than eleven millions to 
their creditors, which many believed it was the plain duty 
of the government to pay, having appropriated the best 
sources of revenue formerly possessed by the States. 
Gallatin did not go so far as to maintain that such an 
adjustment ought to have been made, though perhaps 
this inference may be fairly drawn from his writings. 

His next criticism is more weighty, and cannot be easily 
shaken. "Even the warmest supporters of the State 
debts," he says, " on its most enlarged scale ; even those 
who think, that, both on the score of justice and in order 
to relieve them from a heavy burden, it was wise and 
politic to have assumed the whole of the sum which was 
actually assumed in favor of the creditor States, — even 
they must acknowledge that an assumption made at 
random before the accounts were settled, rendered it 
unavoidable to assume debts in favor of States which 
were, in fact, already indebted to the Union, and that 
the consequence has been such as might have been fore- 
seen. Thus near $1,200,000 were assumed for the State 
of New York, which, when the accounts were finally set- 
tled, was found to be indebted to the Union to the amount 
of more than two millions. It is self-evident," he adds, 
" that the debts thus assumed for debtor States were not 
due by the United States, that they are a debt unneces- 

i Views of the Public Debt, p. 24. 



1790.] 



FUNDING OF THE REVOLUTIONARY DEBT. 



39 



sarily constituted and created by the present government. 
On the most superficial view of the subject, it appears 
that 12,069,565.71 have been assumed for debtor States, 
to the manifest injury of the other States." * A twofold 
reason existed for pressing the assumption of the State 
debts before there was a settlement of the accounts be- 
tween the States and the government. In the first place, 
the States which were burdened with the heaviest debts 
were impatient for an early settlement, "apprehensive," 
as Gallatin says, "either that they might not be found 
creditor to so large an amount as the sums assumed for 
them, or that, if they did not obtain immediate relief, 
justice might afterwards be denied to them." The other 
reason was the strengthening of the government by ren- 
dering all the creditors of the several States dependent 
on the Union. 

In regard to the debts between the States and the gov- 
ernment, the time for presenting them on either side was 
continued ; and in December, 1793, the commissioners made 
their final report. In accordance with the principles 
adopted by Congress for adjusting this class of accounts, 
the States were debited and credited as follows : — 



CREDITOR STATES. 



New Hampshire 
Massachusetts 
Rhode Island 
Connecticut . 
New Jersey . 
South Carolina 
Georgia . . 

Total . 



$75,055 

1,248,801 

299,611 

619,121 

49,030 

1,205,978 

19,988 



$3,517,584 



DEBTOR STATES. 


New York . . . 


. $2,074,846 


Pennsylvania . . 


76,709 


Delaware . . . 


612,428 


Maryland . . . 


151,640 


Virginia . . . 


100,879 


North Carolina . 


501,082 


Total . . . 


. $3,517,584 



1 Views, p. 25. 



40 FINANCIAL HISTORY OF THE UNITED STATES. [1790. 

After making this report, Congress enacted that inter- 
est on the balances due to the creditor States should be 
allowed from the last day of December, 1789, for the four 
succeeding years, at the rate of four per cent per annum, 
"and that the amount of such interest be placed to the 
credit of the State to which the same shall be found due 
upon the books of the treasury of the United States, and 
shall bear an interest of three per centum per annum " 
after the last day of December, 1794. 1 With respect to 
the balances, Congress had already provided for funding 
them, within twelve months from the time they were 
ascertained, " upon the same terms with the other part of 
the domestic debt of the United States." 2 

Thus the government faithfully performed its duty 
toward the States, and funded the balances due to them , 
but they, on the other hand, were not so faithful. They 
neglected almost totally to do any thing. The govern- 
ment was powerless to collect the balances in its favor. 
Had the government delayed to pay to the States the 
amount assumed, it might have retained enough to bal- 
ance every account. It is true that the indebtedness on 
the one side was somewhat different from that on the 
other. Yet it may be questioned whether such a course 
by the government would not have been strictly just. 
Unwilling to pay, the government sought to coax the 
States by making a new offer. If they would build for- 
tifications, and make other public improvements, the 
amount expended would be credited to them against the 

1 Act, May 31, 1794, 3 Cong., first session, chap. 37. 

2 Act, Aug 5, 1790, 1 Cong., second session, chap. 38, sect. 7 : in other 
words, should he funded like the second portion of the public deht. 



1790.] FUNDING OF THE REVOLUTIONARY DEBT. 41 

balances due to the government. A little over $200,000 
was spent by New York in fortifying its chief • harbor, 
which was duly credited. The other debtor States did 
nothing, and finally all were relieved of their indebted- 
ness to the government by Congress. 

Thus the proposals of the government had been ac- 
cepted. A more economical system might have been 
devised; but, crude as this was, the hope of saving the 
national life was immensely strengthened, while older 
nations beheld our exhibition of creative political energy 
with wonder. The darkest cloud in the firmament of the 
Union had disappeared. The restoration of the public 
credit was the beginning of a new era. The long, dreary 
period of neglected and broken promises was past. 



42 FINANCIAL HISTORY OF THE UNITED STATES. [1790. 



CHAPTER IV. 

PAYMENT OF THE REVOLUTIONARY DEBT. 

Hamilton was no believer in the doctrine that a na- 
tional debt is a national blessing. As soon as the debt 
was funded, he began to mature measures for paying it. 
The spirit of repudiation was then unknown ; and the 
people generally favored the adoption of such a policy as 
would effectually remove the burden of public debt at no 
distant day. 

By the funding-law $600,000 of annual revenue were 
reserved for paying the expenses of the government ; and 
the residue of the income arising from duties on imports 
and tonnage was appropriated to paying the interest 
on foreign loans, and on future loans obtained for dis- 
charging the interest on prior foreign ones, and also the 
principal. The income thus accruing was to continue 
appropriated in the manner prescribed, until all the loans 
made by virtue of that law were fully satisfied. 1 

1 There was a writer who proposed that the debt should be paid "with- 
out oppressing the citizens," simply by taxing the vices prevailing at that 
time, the chief of which were perjury, drunkenness, blasphemy, slander, 
and infidelity. " Would it not, then, be worthy of our consideration, and 
that of the different Legislatures, to inquire whether a moderate tax upon 
every particular vice would not be more conducive to our welfare than 
the cramping of our foreign and domestic trade? Such a tax must, of 



1790.] PAYMENT OF THE EEYOLUTIOXABY DEBT. 43 

As another loan must be made to pay a portion of the 
foreign debt then due, and the arrears of interest on the 
same, the President was authorized to borrow not more 
than 812,000,000 to discharge those obligations, and to 
pay the foreign debt, if this could be advantageously 
done. He was clothed with the broad authority to make 
such other contracts respecting the debt as should be 
for the interest of the States. But any loan made by 
him must be payable within fifteen years. 

By the same law, the public revenues derived from 
imports and tonnage were '* pledged and appropriated for 
the payment of the interest on the stock " issued by the 
government, except the portions set apart for the pur- 
pose previously described. That such revenues might be 
"inviolably applied," and never "diverted to any other 
purpose," the secretary of the treasury was required to 
keep an account of " the receipts and disposition thereof, 
separate and distinct from the product of any other duties, 
imports, excises, and taxes." The faith of the government 
was also pledged to provide and appropriate such addi- 

necessity, yield a vast revenue, and prove a most infallible scheme for our 
prosperity." 

The writer then proceeds to show how much might he collected from 
a moderate tax on perjury, which he took " to he the most important and 
particular staple vice." Drunkenness " I would only tax sixpence," "as 
it might be prejudicial to trade, as well as the revenue, to discourage it." 
" Swearing would be a most universal benefit towards augmenting these 
funds; " though he thought that military men would object, and claim an 
exemption from it. "Conjugal infidelity, as the world goes at present, 
would furnish the public with a large sum, even at a very moderate tax; 
for it is now made an essential part of the polite gentleman's character, 
and he that has prevailed on the greatest number proportionally rises in 
reputation." Luxuries were also to be heavily taxed, but he did not 
favor the taxation of bachelors. — Am. Museum, vol. vi. p. 286. 



44 FINANCIAL HISTORY OF THE UNITED STATES. [1796 

tional and permanent funds as might be required for pay- 
ing the interest on its stock. For the payment of the 
principal of the public indebtedness, the proceeds of the 
sales of the public lands were pledged. 1 

Subsequently, during the same session, a second reve- 
nue Act was passed, in which Congress enacted that the 
several duties imposed thereby should be collected and 
paid, until the debts and purposes for which they were 
pledged and appropriated were fully discharged ; the gov- 
ernment, however, reserving the right to substitute other 
taxes of equal value. Congress further enacted that all 
surplus revenue should be applied to the purchase of the 
debt of the United States, "at its market-price, if not 
exceeding the par or true value thereof," and that the 
purchase should be made under the direction of the Presi- 
dent, the chief justice, the secretary of state, the secre- 
tary of the treasury, and the attorney-general. Only a 
single specific direction was imposed in making purchases ; 
namely, they were to be made openly, and with due re- 
gard to the equal benefit of the several States. By the 
same Act the President was authorized to borrow $2,000,- 
000, " at an interest not exceeding five per cent," for the 
purpose of purchasing the domestic debt. The public 
debt thus bought by the government was to be regarded 
as bearing interest, just as though it were owned by an 
individual ; and a portion, " not exceeding the rate of 
eight per cent per annum on account both of principal 
and interest," was to be applied " towards the repayment 
of the two millions of dollars so to be borrowed." 2 The 

1 Act, Aug. 4, 1790, 1 Cong., second session, chap. 34, sects. 1, 2, 20-22. 

2 Act, Aug. 12, 1790, 1 Cong., second session, chap. 47. 



1792.] PAYMENT OF THE REVOLUTIONARY DEBT. 45 

object of providing the means to buy the debt so early, 
even though obtainable only by borrowing, was to enhance 
the value of the debt, and restore the credit of the nation. 1 
More complete regulations were subsequently adopted 
for redeeming the public debt. The first of these was 
in May, 1792. 2 The president of the Senate, the chief 

1 Hamilton, in his Report on Public Credit (Jan. 14, 1790), remarked, 
" This measure, which would be, in the opinion of the secretary, highly- 
dishonorable to the government if it were to precede a provision for fund- 
ing the debt, would become altogether unexceptionable after that had been 
made. Its effect would be in favor of the public creditors, as it would tend 
to raise the value of stock; and all the difference between its true value 
and the actual price would be so much clear gain to the public. The pay- 
ment of foreign interest on the capital to be borrowed for this purpose, 
should that be a necessary consequence, would not, in the judgment of the 
secretary, be a good objection to the measure. The saving by the operation 
would be itself a sufficient indemnity; and the employment of that capi- 
tal, in a country situated like this, would much more than compensate for 
it. Besides, if the government does not undertake this operation, the same 
inconvenience which the objection in question supposes, would happen in 
another way, with a circumstance of aggravation. As long, at least, as the 
debt shall continue below its proper value, it will be an object of specula- 
tion to foreigners, who will not only receive the interest upon what they 
purchase, and remit it abroad, as in the case cf the loan, but will reap the 
additional profit of the difference in value. By the government's entering 
into competition with them, it will not only reap a part of the profit itself, 
but will contract the extent, and lessen the extra profit, of foreign pur- 
chasers. That competition will accelerate the rise of stock; and whatever 
greater rate this obliges foreigners to pay for what they purchase is so 
much clear saving to the nation. In the opinion of the secretary, and con- 
trary to an idea which is not without patrons, it ought to be the policy of 
the government to raise the value of stock to its true standard as fast as 
possible. "When it arrives to that point, foreign speculations (which till 
then must be deemed pernicious, further than as they serve to bring it to 
that point) will become beneficial. Their money, laid out in this country 
upon our agriculture, commerce, and manufactures, will produce much 
more to us than the income they will receive from it." 

2 2 Cong., first session, chap. 38. 



46 FINANCIAL HISTORY OF THE UNITED STATES. [1793. 

justice, and the several members of the cabinet, were 
appointed commissioners to purchase the public debt at 
its market-price, if not exceeding the par or true value ; 
and the interest on any portion redeemed, and the sur- 
plus of any sum appropriated for the payment of interest, 
were "appropriated and pledged firmly and inviolably" 
for the purchase and redemption of the debt. The income 
thus derived was to be applied, under the direction of 
the commissioners, with the approval of the President, 
in the following manner: first, to the purchase of the 
several species of stock at their respective market-prices, 
not exceeding the par or true value, and as nearly as 
might be in equal proportions, until the annual amount 
of such funds, together with any other provisions which 
might be made by law, should be equal to two per cent 
of the whole amount of the outstanding funded stock, 
bearing a present interest of six per cent; secondly, to 
the redemption of the last-mentioned stock, until the 
whole amount should be redeemed; and lastly, after such 
redemption, to the purchase, at its market-value, of any 
other stock. All future purchases were to be at the low- 
est price in open market, or by receiving sealed proposals, 
which were to be opened by the commissioners. The Act 
closed by requiring them to render a quarterly account 
for settlement, like any other public account, and also a 
full and exact report of their proceedings to Congress, 
within the first fourteen days of each session. 

Congress neglected no longer to provide for paying the 
foreign officers who had served in the armies of the United 
States during the Revolution. The amount due, with the 
arrears of interest to the close of 1791, was $220,646.81. 



1792.J PAYMENT OF THE EEVOLUTIONAEY DEBT. 47 

In 1784 the Congress of the Confederation directed that 
interest should be annually paid to them. The 20th of 
August, 1788, the payment of interest was ordered to the 
end of that year. Then the government ceased to pay, 
and Hamilton suggested the expediency of discharging 
the entire debt, for the reason that it bore six per cent 
interest, payable abroad, and something could be saved by 
discharging it. He also said there were other reasons, 
" of a nature both weighty and delicate, and too obvious 
to need a specification." Accordingly, the President was 
authorized to discharge the principal and interest of this 
debt from the twelve-million loan previously described, if 
the whole amount were not needed to fulfil the purpose 
specified in the Act authorizing it. 1 The debt was not 
entirely paid until 1828. 

These measures did not go far in providing effectively 
for the discharge of the funded indebtedness. Congress 
directed Hamilton to report a plan for redeeming that 
portion of the public debt which the government had 
reserved the right to redeem; and in December he pre- 
sented to the House his views on the subject. The sur- 
plus of the present revenues, he thought, should be applied 
to such casual exigencies as might from time to time 
occur, to occasional purchases of the debt, to the payment 
of interest on any balances which might be found due to 
particular States on the general settlement of accounts, 
and finally to the payment of interest on the deferred 
part of the debt when the period arrived. Kelinquish- 
ing the idea of an immediate application of the present 
revenues to the object in view, Hamilton proceeded to 
i 2 Cong., first session, chap. 38, sect. 5. 



48 FINANCIAL HISTORY OF THE UNITED STATES. [1793. 

consider what other modes were open for adoption by 
Congress. 

Loans from time to time, equal to the sums annually- 
redeemable, and bottomed on the same revenues as were 
then appropriated to pay the interest thereon, was an 
expedient which he declared might be advantageously 
employed. As money could probably be borrowed at 
lower rates, a material saving would result : this expedi- 
ent, therefore, should not be neglected. 

But Hamilton was satisfied with no such slow process 
of discharging the debt. He did not believe in binding 
it around posterity. Accordingly, he advised the estab- 
lishment of additional revenues. Assuming these as the 
basis of a plan of redemption, he proceeds to inquire 
in what way they should be enlarged, and offers three 
propositions : — 

1. Shall a revenue be immediately constituted, equal to 
the full sum which may at present be redeemed, according 
to the terms of the contract? 

2. Shall a revenue be immediately constituted, equal 
only to the interest of the sum to be redeemed in each 
year, coupling with this operation an annual loan com- 
mensurate with such sum ? or, 

3. Shall a revenue be constituted each year, so much 
exceeding the interest of the sum to be redeemed as to 
be sufficient, within a short, definite term of time, to 
discharge the principal itself ; coupling with this opera- 
tion, also, an annual loan equal to the sum to be annually 
redeemed, and appropriating the revenue created to its 
discharge within the term which shall have been pre- 
determined ? 



1793.] PAYMENT OF THE REVOLUTIONAEY DEBT. 49 

The last inquiry contained the plan which accorded 
most perfectly with the view of the secretary. In apply- 
ing it, he maintained that two points ought to be ac- 
complished: first, the complete discharge of the sums 
annually redeemable within the period prefixed, and the 
reimbursement within the same period of all auxiliary 
loans that might be made for that purpose ; secondly, 
the creation, by the expiration of that period, of " a clear, 
annual fund, competent to the future redemption of the 
debt to the extent of the right reserved." * 

The period to which the plan ought to refer, so he 
suggested, was the 1st of January, 1802, when the first 
payment on account of the principal of the deferred debt 
could be rightfully made. Hamilton then shows how 
the "annual fund" might be raised for each year until 
1802 ; but Congress did not see fit to adopt the plan. 

1 Works, vol. iii. p. 338. Premising that the sum to he redeemed the 
first year, of the six-per-cent stock bearing a present interest, was com- 
puted at $550,000, Hamilton proposed to constitute an annual fund at that 
session equal to $103,199.06, which should begin to accrue from the 1st of 
January, 1793. " Let the sum of $550,000 be borrowed upon the credit of 
this annuity, reimbursable within five years, that is, by the 1st of January, 
1799; the sum to be borrowed to be applied, on the 1st of January, 1794, 
to the first payment on account of the principal of the debt. The proposed 
annuity will reimburse the sum borrowed, with interest, by the 1st of 
January, 1799, and will thenceforth be free for any further application." 
Hamilton proposed to raise the means for constituting this first annuity 
from two sources : viz., the annual surplus of the dividend on the stock 
held by the government in the Bank of the United States beyond the in- 
terest to be paid out upon the money borrowed to pay for the same, which 
surplus was estimated at $60,000; and a tax on horses kept for riding, or 
drawing carriages. The product of this tax was estimated at $43,199.06. 
Hamilton proceeds to fix the sums to be redeemed each year, and what 
annuities are required to be raised, in a manner similar to the process 
above described. 



50 FINANCIAL HISTORY OF THE UNITED STATES. [1795. 

It was doubtless too elaborate for Congress: indeed, it 
was a kind of Eleusinian mystery, lacking simplicity and 
originality. It was strongly flavored with the English 
ideas of finance prevailing at that time, and which long 
since were thrown away. 

In his final report on the subject, Hamilton sets forth 
the steps already taken by Congress for redeeming the 
debt, and offers some other suggestions, which were em- 
bodied in a law passed early in 1795. 1 

By this enactment the commissioners of the sinking- 
fund were empowered, with the approval of the President, 
to borrow a sum not exceeding one million dollars annu- 
ally, to pay the interest accruing on the public debt, in 
anticipation of the revenue appropriated for that purpose. 
A loan was to be opened at the treasury for raising 
money to discharge the foreign debt. All duties on mer- 
chandise and the tonnage of vessels, set free by the fore- 
going operations, were pledged for the payment of the 
interest and principal of the debt. Some duties which 
had been temporarily laid were to be permanent. The 
sinking-fund was enlarged, and the powers of- the sinking- 
fund commissioners were extended, and more minutely 
defined. 

Two per cent of the principal of the six-per-cent 
stocks was *to be paid annually, and a similar payment, 
after the year 1801, of the principal of the stock, which 
at that time would begin to bear interest. All priorities 
previously established in the appropriations for interest 
on the public debt were to cease after the year 1796, with 
respect to all creditors not expressing their dissent in 

1 Works, vol. iii. p. 456. Act, March 31, 3 Cong., second session, chap. 45. 



1796.] PAYMENT OF THE REVOLUTIONARY DEBT. 51 

writing before that time. The law also provided that 
all loan-office and final certificates and indents of interest 
which should be outstanding the 1st of January, 1797, 
might be presented at the office of the auditor of the 
treasury for the purpose of exchanging them for other 
certificates of equivalent value and tenor, or for regis- 
tering them ; in which case, of course, they were to be 
returned. If the holders did neither thing, they were to 
be barred from " settlement of allowance." Unexpended 
appropriations, after the period of two years, except those 
for the payment of interest on the funded debt, or for 
the payment of the interest or principal of any loan, 
were to form a new account, which was to be called 
" the surplus fund." 

Such were the leading provisions of the last of a series 
of fourteen Acts relating to the funding and redemption 
of the public debt, which were passed during Hamilton's 
administration of the treasury department. The next 
year more specific regulations were established for pay- 
ing the interest and principal of the debt. Dividends 
were to be paid the last days of March, June, and Sep- 
tember, until 1818, " at the rate of one and one-half per 
centum upon the original capital," and a final dividend 
for the balance, on the last day of that year. 

The deferred stock was to be paid in the same manner. 
The time for paying dividends thereon was to begin in 
1801, and end in 1824. A similar provision was made 
for paying the balance due to the States. 1 

When Gallatin succeeded to the treasuryship, another 
law was enacted, relating to the payment of the debt, which 

1 Act, April 28, 1796, 4 Cong., first session, chap. 16. 



52 FINANCIAL HISTORY OF THE UNITED STATES. [1803. 

is the last requiring extended consideration. Nearly ten 
years had passed since the commencement of the funding 
operations, and the defects in the measures adopted were 
clearly seen. 

The Committee of Ways and Means, of which Randolph 
was chairman, declared that no effectual provision for the 
final redemption "of the whole present debt of the United 
States did at that time exist. To the measures which had 
already been adopted, their complexity formed an objection 
inferior only to their insufficiency." These criticisms, 
though containing some truth, were colored by party 
temper. Another political party had obtained control 
of the government, and the leaders manifested a strong 
disposition to shrivel the importance of the work of their 
opponents. Randolph's report was the product of a letter 
written by Gallatin, in whom was embodied most of the 
financial wisdom possessed by his party. 

Gallatin declared that the appropriations made sub- 
sequently to the 3d of March, 1795, which were not 
vested in the commissioners of the sinking-fund, did not 
constitute a contract with the creditors, and consequently 
were not permanently inviolable. Like any other ordi- 
nary law, it might be repealed without a breach of faith, 
and afforded no security, therefore, for the eventual 
discharge # of the debt. The surpluses of the revenue, 
though vested in the commissioners of the sinking-fund, 
were substantially liable to the same objection ; for as 
only the surplus of revenue, beyond all the appropriations 
charged to it, was applicable to the payment of the debt, 
nothing more was necessary to defeat that provision than 
large appropriations for other objects. 



1802.] PAYMENT OF THE REVOLUTIONARY DEBT. 53 

Not only were the provisions relating to the payment 
of the public debt difficult to be executed, uncertain 
in their amount, dependent on the will of the Legisla- 
ture, and inadequate to the object, but it was ultimately 
a matter of discretion with the secretary of the treasury 
to carry them into effect, even in the case of surpluses 
vested in the sinking-fund. 

Gallatin then sets forth in the clearest light how a 
secretary who was so disposed might defeat, under the 
existing laws, the intention of Congress altogether, with 
respect to paying the public debt. " All payments must 
be made out of moneys in the treasury. An appropria- 
tion authorizing and directing the annual payment of a 
certain sum, as in the case of the eight-per-cent annuity 
on the six-per-cent and defined stocks, must be satisfied 
each year out of those moneys. An appropriation des- 
ignating for a certain object all moneys arising from a 
certain source, as in the case of the proceeds of the 
Western lands, and of old debts, is equally efficient, as 
those moneys cannot be applied to any other object. 
But the other appropriations for the redemption of the 
public debt are neither accompanied with an imperative 
clause directing their application, nor bottomed on a 
distinct source of revenue 1 solely applicable to that ob- 
ject; and they rest, in common with all the appropri- 
ations for the civil, military, and naval expenses of 
government, partly on moneys in the treasury, and prin- 
cipally on the outstanding uncollected revenue. The 
aggregate of all these several kinds of appropriations 
uniformly exceeds the moneys in the treasury; and it 

1 The additional duties of 1797 excepted. 



54 FINANCIAL HISTORY OF THE UNITED STATES. [1802. 

remains always optional with the secretary of the treas- 
ury which of them he will satisfy; and, where the law 
does not direct in express terms the payment of a debt, 
it is left to his discretion whether he shall pay it or 
not." 

The object of the law of March 3, 1795, was to make 
an efficient provision for the gradual reimbursement of 
the six-per-cent deferred stocks by paying eight per cent 
a year, and to pave the way for a future though distant 
payment of the foreign debt by giving to the sinking- 
fund the unascertained resources which might be derived 
from the sale of lands and surpluses of revenue, and, 
after the respective redemption of the six-per-cent and 
deferred stocks in 1818 and 1824, a sum equal to the 
interest accruing on the debt thus redeemed. 

This law, Gallatin thought, did not provide efficiently 
for the discharge of the foreign debt, especially as the 
Dutch creditors had rejected the proposal of converting 
the amount due to them into a domestic debt. More- 
over, the appropriations made since 1795 had proved alto- 
gether inefficient, and had not " produced any other effect 
than that of rendering still more complex a system in 
its nature sufficiently intricate." It was also important 
to discharge the temporary loans to the Bank of the 
United States as soon as the funds could be spared from 
the treasury. To attain these ends, Gallatin contended, 
nothing more was necessary than to provide as adequately 
as the law of March, 1795, had provided for the pay- 
ment of an eight-per-cent annuity on the six-per-cent and 
deferred stocks by vesting in the commissioners of the 
sinking-fund, beside the other funds already vested in 



1803.] PAYMENT OF THE REVOLUTIONARY DEBT. 55 

them, such an annual sum, to be paid from the duties on 
tonnage and merchandise, as would be equal to the pro- 
posed redemption, and by directing the commissioners 
to apply the same in that manner. This provision, he 
declared, would be determinate in amount, simple in 
execution, and certain in effect : it would neither derange 
nor alter a single existing appropriation or payment in 
relation to the sinking-fund for which the public faith 
was pledged, but would leave to all the other uncertain 
funds of that fund, and especially to the surpluses of the 
revenue, their legitimate operation. 1 

Congress adopted the plan proposed. The duties on 
merchandise and tonnage, together with other money 
beside the surpluses of revenue then constituting the 
sinking-fund, or which should accrue to it by virtue of 
any former law, and also the sums annually required to 
discharge the interest and charges accruing on the debt, 
including temporary loans previously obtained, and future 
ones for reimbursing or redeeming any instalments or 
parts of the principal of the debt, as would amount to 
an annual sum of $7,300,000, were } 7 early appropriated 
to the sinking-fund. In proposing this sum, Gallatin 
was not guided by any abstract or arbitrary principle, 
but by the amount needed for the present year and the 
two following years in order to meet the payments on 
the Dutch debt. This appropriation the secretary of the 
treasury was positively enjoined to pay annually to the 
commissioners of the sinking-fund. It was vested in 
them in the same way as other money had been ; and 
they were required to apply it in paying interest and 

1 Randolph's Report, April 9, 1802, 1 Finance, p. 746. 



56 FINANCIAL HISTOKY OF THE UNITED STATES. [1790. 

charges, and reimbursing the principal of the debt. The 
commissioners were authorized to borrow money to pay 
the Dutch debt, Congress prescribing with unusual mi- 
nuteness the conditions of the loan. 1 The next year 
$700,000 were added to the sinking-fund in consequence 
of the purchase of Louisiana. Although Gallatin was 
exceedingly desirous of reducing the debt, he favored 
this purchase ; for the territory was not only very valu- 
able, but a question was forever settled which otherwise 
might cause national disquietude. 

Having traced the formal expression of the govern- 
ment concerning the payment of its debt, let us see how 
its determination was fulfilled. 

When the first funding Act was passed, Congress inau- 
gurated, as we have seen, the policy of appropriating 
certain revenues for the discharge of several specified 
obligations, established a priority in their payment, and 
directed the secretary of the treasury to keep a separate 
account of the receipt and disposal of the revenues 
thus appropriated. To keep such accounts was not an 
easy task, and when Congress appropriated other reve- 
nues in the same way, which was done on several occa- 
sions afterward, the difficulty of keeping each account 
was greatly increased. The policy of thus appropriating 
particular revenues for special purposes has found many 
opponents and defenders. 

Hamilton wished to incorporate into the system of 
national credit, as a fundamental maxim, that the creation 
of debt should always be accompanied with the means 
of extinguishment. This he regarded as the true secret 

l Act, April 29, 1802, 7 Cong., first session, chap. 32. 



1790.] PAYMENT OF THE REYOLUTIONAKr DEBT. 57 

for rendering public credit immortal. Congress was per- 
suaded by him to adopt such a policy. It was a repe- 
tition of the policy established by the papal government 
more than six centuries ago. But the action of Congress 
was not uniform. On several occasions Congress, when 
raising revenues, pledged them for various purposes, either 
special or general: in other cases, they were not appro- 
priated in the Act creating them, but became a general 
fund from which the secretary could draw to meet other 
engagements. 

The use of "the surplus fund" we have already de- 
scribed. Of course, moneys falling into it were unappro- 
priated, and did not belong to the commissioners of the 
sinking-fund. In 1802 Congress provided, that, after the 
reimbursement of the greater part of the debt, any bal- 
ance of the sums annually appropriated for the payment 
of the debt, remaining unexpended for six months after 
the close of the calendar year, should be carried to the 
surplus fund. With the exception of the small amount 
falling into this fund, the total income of the government, 
beside the expense of maintaining it, was appropriated to 
redeeming its funded indebtedness, or new obligations 
constantly incurred. 

At first, progress in extinguishing the debt was slow. 
The interest was promptly paid, either from revenues 
derived by taxation, or from the proceeds of loans 
authorized for that purpose. Payments were made at 
thirteen places ; and the making of them was " an opera- 
tion as difficult and complicated as it was new." It 
was necessary to lodge for some time previous to the 
expiration of each quarter, at several of the loan-offices, 



58 FINANCIAL HISTORY OF THE UNITED STATES. [1790. 

drafts of the treasurer for the sums estimated to be 
needed at those places, " with blanks for the direction," 
and with liberty to the respective officers to dispose of 
them on different places, as the demand accrued. Hamil- 
ton had two ends in view in establishing this method of 
paying interest, — one was to avoid large accumulations 
at particular points; and the other was to facilitate the 
placing of the requisite sums where they were wanted, 
without the transportation of specie. Says Hamilton in 
one of his communications to Congress, "The allowing 
of the drafts to be disposed of on several places gives 
larger scope to a demand for them, and renders them 
more easily salable." 

By direction of the President, Hamilton negotiated 
six loans with parties in Holland during the years 1790, 
1791, and 1792, and applied the money in the manner 
prescribed by Congress. At first Hamilton sought to 
negotiate separate loans, based on the two laws authoriz- 
ing them ; but he found that money-lenders were accus- 
tomed to lend on the general credit of the government 
borrowing, " with a sort of general pledge of its revenues 
and resources," and not by virtue of any particular law. 
As such a thing was a novelty which might lead to hesi- 
tation and embarrassment "in the negotiation of the 
loans and in the application of their proceeds," Hamilton 
abandoned his original intention, and "concluded to let 
the loans proceed indiscriminately upon both Acts." 1 

Instead of keeping an account of these funds sepa- 
rately, and applying them as required by the two laws 

1 Communication to House, on Loans, Feb. 13, 1793, Works, vol. iii. 
p. 371. 



1790.] PAYMENT OF THE REVOLUTIONARY DEBT. 59 

under which they were obtained, they were added to the 
surplus fund, which the secretary had a right to apply in 
a manner different from the proceeds of the foreign loans. 
The former fund he could rightfully apply toward the 
payment of interest on the domestic debt, but not the 
foreign money. He did, however, use a small portion of 
it in this way; yet the transaction, which gave rise to 
to a heated investigation by Congress, was sustained by 
a very large majority. 1 

When investigating this subject, it was supposed that 
the surplus, as well as the proceeds, of the foreign fund, 
was kept separately from " the common mass of the 
moneys appearing from time to time in the treasury." 
Such had not been the custom of the department. All 
moneys, from every source, were placed there, and con- 
stituted "an aggregate, subject to the dispositions pre- 
scribed by law." The separation was made only when 
the money was applied to various purposes : that em- 
ployed in the sinking-fund, for example, was separated 
when taken for actual investment. The only exception 
was that portion of the sinking-fund created by the 
interest of the debt purchased. 

With the funds thus derived from abroad, a portion of 
the debt due to the foreign officers was discharged ; also 
the Spanish debt, the arrears of interest on the foreign 
debt, and some portion of the principal, as well as inter- 
est, of the domestic debt. The gross principal of the 
Holland loans authorized by the two Acts of the 4th and 
12th of August, 1790, received to the end of 1793, was 
18,200,000. The principal of the foreign debt, which had 

i Baldwin's Report, May 22, 1794. 



60 FINANCIAL HISTORY OF THE UNITED STATES. [1795. 

been discharged by these loans, amounted to $3,757,614.- 
64 ; France receiving $3,583,603.64, and Spain $174,011. 
From the same fund had been paid for arrears of in- 
terest on the French and Spanish debt, to the end of 
1790, $1,963,971.50. The foreign officers had received 
of the principal due to them $50,049.42, and as interest 
$7,305.84. The residue of the loans had been applied 
in other ways, or was reserved for future application. 

Only a short period elapsed before embarrassments 
arose respecting the payment of interest on the loans 
contracted abroad. There was but little specie in the 
country ; while shipments of merchandise were often 
objectionable and hazardous, and the exchanges were so 
deranged as to render this an expensive way of making 
settlements. To obviate these difficulties, the conversion 
of the foreign into a domestic debt was authorized. Dur- 
ing the spring and summer of 1795, Wolcott, who had 
succeeded Hamilton as secretary of the treasury, sought 
to effect such a conversion, and was successful in convert- 
ing the French debt. The state of affairs in France, and 
the advantage of having an active capital in the United 
States for the purchase of provisions and stores, induced 
the government to accept the proposal. The balance of 
the French debt was ascertained, and subscribed to the 
new loan, and stock was issued therefor. These stocks 
were known as the five and a half and four and a half per 
cents of 1795, and amounted respectively to $1,848,900 
and $3,176,000. As the Spanish debt had been already 
extinguished, the task remained for Wolcott to execute, 
if possible, a similar arrangement with the creditors in 
Holland. 



1795.] PAYMENT OF THE REVOLUTIONARY DEBT. 61 

The moment was unfavorable for executing the scheme. 
War was raging in Europe ; and many European nations 
were indebted to Dutch capitalists, and some of them had 
failed to fulfil their obligations. Communication with 
England had been severed, and a general and unprece- 
dented derangement existed in the Dutch finances and 
exchange. The Act, too, authorizing the operation, was 
imperfect. The additional interest prescribed was not 
enough to counterbalance the loss by exchange, the diffi- 
culty of transfer, and, above all, the redeemable feature of 
the proposed loan. Under these circumstances it was 
found impossible to convert the remainder of the foreign 
indebtedness into a domestic debt. 

The same causes also operated to prevent the punctual 
payment of the instalment due on the old loan in 
February, 1795. As a preferable remittance to money, 
Hamilton purchased of the Bank of the United States 
$500,000 of six-per-cent government stocks, which he 
sent to brokers in Amsterdam to sell, and with the pro- 
ceeds to pay the next instalment of the debt. In April 
the additional sum of 1160,000 was purchased by Wol- 
cott, and remitted. It was expected that the stock would 
be sold at par, including interest, or that the instalment 
would be continued by a new contract. Both calculations 
proved erroneous. - Not only could no re-loans be made 
on the terms proposed, but the bank-stock could not be 
sold except at a ruinous sacrifice. As the cause of delay 
in discharging the instalment was well known, and the 
interest was duly paid, the public credit did not suffer , 
but the fact proved how unwise Congress had been in 
restricting the commissioners of the sinking-fund with 



62 FINANCIAL HISTORY OF THE UNITED STATES. [1800. 

respect to the terms of the loan, without providing other 
ways in case the loan could not be obtained. 1 

The embarrassment of the treasury continued during 
the summer of 1796, from the operation of the causes 
previously mentioned. Of the loan of 15,000,000, author- 
ized in May, and known as the six-per-cent loan of 1796, 
only $80,000 were subscribed. The proceeds were to be 
applied in payment of the temporary loans due to the 
bank. Unable to borrow this amount, the commissioners 
of the sinking-fund were obliged to sell a portion of the 
bank stock owned by the government, to reimburse the 
bank. The Act granting this authority to them was de- 
nounced by Hamilton as a fatal invasion of the system 
for paying the debt. Wolcott shared the same opinion ; 
and he opposed doing what the law permitted until oppo- 
sition was seen to be useless. 

The government necessarily incurred so many extraor- 
dinary expenditures, that for several years there was 
no reduction of the debt. It was needful, therefore, to 
increase the revenues, if debt-paying was to begin. In 
reporting the estimates for the year 1800, the committee of 
ways and means discussed the propriety of providing per- 
manent revenues, not only to pay the interest on the loan 
of $3,500,000, which they had recommended Congress to 
make in order to pay the bank, but also for " the gradual 
and timely extinguishment of the principal," — a policy, 
which, in their opinion, ought to be invariably followed 
as the only means of avoiding that constant accumu- 
lation of debt which was the great evil of the funding- 
system. 

1 Gibbs's Adin., vol. i. p. 184. 



1800.] PAYMENT OF THE EEVOLUTIONARY DEBT. 63 

Beside providing revenues to pay the interest and prin- 
cipal of the debt just mentioned, there was another loan 
of 15,000,000, for the discharge of which Congress must 
provide. The interest on these two loans was $680,000. 
The committee proposed to raise enough revenue to pay 
this amount, and also two per cent of the principal, which 
would require 1170,000 more. This annuity would extin- 
guish the debt in twenty -four years, — the term adopted 
in the original funding-bill with reference to the six-per- 
cent stock. As the terms of the last loan, however, pre- 
vented an application of the annuity for ten years to the 
payment of it, the committee proposed the applying of 
the annuity in "the purchase of the public debt in gen- 
eral by way of sinking-fund." The committee added, 
that every consideration of sound policy, and the best 
established principles of financial economy, were in favor 
of using it. 

The ways and means recommended by Wolcott were 
an augmentation of the duties on wines, an increase of 
two and a half per cent on those articles which paid 
an ad valorem duty of ten per cent, and a new arrange- 
ment respecting drawbacks. The effect would be to 
impose a tax of fifteen to eighteen per cent on the 
whole amount. The increase on wines, and the two 
and a half per cent addition to the articles bearing 
an ad valorem duty, were to be perpetual: the tax on 
drawbacks was to be temporary, lasting no longer than 
the continuance of the threatened war with Great Brit- 
ain. The amount of revenue expected from these 
sources was $900,000. Wolcott's recommendations were 
considered by the committee of ways and means, and, 



64 FINANCIAL HISTORY OF THE UNITED STATES. [1800. 

with a slight modification in taxing drawbacks, were 
adopted. 1 

Beside the debt bequeathed by the former government, 
the expenditures were increased in consequence of war 
with the Indians, the whiskey insurrection, the Barbary 
difficulty, the unprovoked aggressions of France, and other 
unusual occurrences. The party opposed to the adminis- 
tration contended there had been no reduction of the 
debt, but rather an increase; and the subject expanded 
into a warm and somewhat protracted controversy. A 
true answer could not be given until the amount of the 
former indebtedness was determined. Say a committee 
who considered the matter in May, 1800, u In ascertain- 
ing the amount of the old debt, two different principles 
have been taken by those who have made their calcula- 
tions on this subject. The first has been to include only 
the interest upon the debt to the close of the year 1789, 
as the nearest convenient period to the day when the 
government commenced its operations, and, after deduct- 
ing from the aggregate of the debt the amount of funds 
then in the power of the government, to consider the 
balance as the amount of old debt. The second principle 
has been to take the amount of debt as the same has been 
liquidated and funded under various Acts of Congress, 
and, after deducting therefrom the funds acquired or pos- 
sessed by the government at the close of the year 1790, 
to consider the balance as constituting the true amount 
of old debt. The difference between these principles con- 
sists in this, — by the last mode of computation, the inter- 

1 Gibbs's Adm., vol. ii. p. 329. Harper's Report, April 30, 1800, 1 Finance, 
p. 642. 




1800.] PAYMENT OF THE REVOLUTIONARY DEBT. 65 

est which accumulated upon the debt subsequent to the 
close of the year 1789, and until the debt was funded and 
provided for by law, is considered as a part of the old 
debt, whereas, by the first mode of computation, that 
interest is totally excluded." 1 

In looking from another side, perhaps the reader may 
see into the subject with greater clearness. The total 
debt of the old Confederation funded was $76,781,953.14, 
of which amount $3,215,575.37 was reimbursed prior to 
1800. The amount paid but not funded, of old debt, was 
$15,927.13 : on the other hand, $7,212,700 of new funded 
debt was created. The amount of property, including 
cash, received from the old government, was $90,826.35. 
Not considering the floating and temporary indebtedness, 
and the cash in the treasury, and uncollected revenues, 
the amount of permanent indebtedness incurred by the 
new government exceeded by more than four millions 
the indebtedness of the old government which had been 
discharged. 

Not until Gallatin became secretary of the treasury 
was there any considerable reduction of the public debt. 
He regarded the discharge of it as " the principal object " 
in bringing him into office. Nor did he, during his long 
administration of the treasury department, ever manifest 
less interest in accomplishing this end than in the be- 
ginning. 

The embarrassment which Hamilton and Wolcott had 
experienced in procuring remittances for Holland con- 
tinued during the early years of Gallatin's administra- 
tion. Within the first six months of the year, 4,439,830 

1 Griswold's Report on the Public Debt, May 8, 1800, 1 Finance, p. 657. 



66 FINANCIAL HISTORY OF THE UNITED STATES. [1803. 

guilders were payable ; and trade had shrunk so heavily 
between the United States and Holland, that it was im- 
practicable to obtain bills on the latter country for that 
amount. The rate of exchange was forty-one cents per 
guilder; and any attempt to procure a large amount 
would surely cause an advance. A company in New 
York offered to remit the whole amount at forty-three 
cents per guilder; and Alexander Baring, at two cents 
per guilder less, provided the government would sell to 
him 2,220 shares of stock of the United-States bank for 
$580 per share, or at forty-five per cent advance. This 
was the balance of bank-stock owned by the govern- 
ment. The offer was accepted, and the sum received 
was applied on the debt due to the bank ; while Baring 
simultaneously sold to the treasury an equal sum in bills 
on Holland, at forty-one cents per guilder. 

u As the dividend usually received on the bank-stock 
sold, and the annual interest payable on the debt due 
to the bank, were nearly equal, the July half-yearly divi- 
dend on the stock was, in fact, the premium paid for the 
purpose of effecting the remittance." Thus the govern- 
ment, without raising the price of exchange, obtained the 
whole amount needed to pay the sum due in Holland 
until September, 1803, at which time the difficulty in 
making remittances had passed away. 

Gallatin was able to reduce the debt from the outset, 
not by introducing new economies, or by increasing taxes, 
but simply for the reason that the unusual and extraor- 
dinary expenditures of the government had ceased. In 
1803, however, Louisiana was purchased for $15,000,000. 
Of this sum, $11,250,000 were raised by issuing a six- 



1806.] PAYMENT OF THE REVOLUTIONARY DEBT. 67 

per-cent stock, payable at the treasury in four instal- 
ments. The first instalment was to be paid in 1818, and 
the last in 1821. The remainder of the purchase-money 
consisted of payments to American citizens having claims 
on the government of France, which, however, were not 
to exceed $3,750,000. Gallatin paid this sum from the 
annual revenues, so that the permanent debt consisted 
only of the stock created. The Louisiana purchase, 
therefore, increased the debt to 185,349,744.35, — the 
highest point it ever reached until the next war with 
Great Britain. 1 

The reduction of the debt thereafter was rapid. Gal- 
latin announced in 1806, that as the only portions of the 
public debt which the government had a right to pay, 
during the year 1807, consisted of the annual reimburse- 
ment of the six-per-cent and deferred stocks, amount- 
ing to $176,000, it was not practicable, unless a purchase 
could be effected within the limitations prescribed by 
law, to apply that year the entire annual appropriation. 
Although the old six-per-cent and deferred stocks 2 were 

1 In March, Congress directed that an inquiry be made of the commis- 
sioners of the sinking-fund, concerning the application of the money 
received by them. The inquiry was occasioned by a variance between the 
reports of the secretary of the treasury and that of the sinking-fund com- 
missioners, which, happily, was satisfactorily explained. It contains a 
very good account of the proceedings of the commissioners, and .of their 
construction of the law appropriating $7,300,000 annually to the payment 
of the interest and principal of the public debt. 

2 The deferred stock was that which began to bear interest in 1800. At 
this time (1806) the annuity on every hundred dollars of the six-per-cent 
stock was $30.16, making, in the aggregate, $8,500,000; and on every hun- 
dred dollars of the deferred stock, $11.30, making $1,540,000. —2 Finance, 
p. 213. 



68 FINANCIAL HISTORY OF THE UNITED STATES. [1806. 

still regarded as six-per-cent stocks, both, in truth, were 
an annuity of eight per cent on the original nominal 
amount, which, extinguishing the principal by degrees, 
would cease for the old six-per-cent stock in 1818, and 
for the deferred in 1824. A certificate of six-per-cent 
stock, of one hundred dollars nominal, was considered 
the 1st of January, 1806, as equal to $69.84 real six-per- 
cent stock, because 130.16 of the principal had been dis- 
charged by the annual reimbursement of eight per cent; 
instead of which, it was an annuity of eight dollars for 
twelve years and somewhat less than nine months. In 
the same manner, a certificate of deferred stock, of one 
hundred dollars nominal, was regarded as equal to $78.70 
real six-per-cent stock ; instead of which, it was, strictly 
speaking, an annuity of eight dollars for eighteen years 
and somewhat less than nine months. Gallatin now pro- 
posed to the committee of ways and means, 1 that the 
government offer to exchange a common six-per-cent 
stock, equal in amount to the unredeemed sum of the 
present stocks, and redeemable at the pleasure of the 
United States. They were to be reimbursed on a single 
day, the government giving a reasonable notice of its 
intention. Gallatin then set forth the advantages to the 
government and the public from adopting the plan ; nor 
did he experience any difficulty in convincing the com- 
mittee of its practicability. A bill embodying his pro- 
posal was presented and passed, and a very considerable 
portion of the old six-per-cent and deferred stocks was 
converted. 2 

i Jan. 20, 1806, 2 Finance, p. 212. 

2 Act, Feb. 11, 1807, 9 Cong., first session, chap. 12. 



1807.] PAYMENT OF THE RE VOLUTION AEY DEBT. 69 

In January, 1809, the following exchanges had been 
effected : — 

NOMINAL AMOUNT. 

Certificates of old six-per-cent stock .... $7,435,767 61 
Certificates of deferred six-per-cent stock . . . 1,940,672 01 
In lieu of which, certificates of exchanged stock for 
the unredeemed amount of the certificates of old 
six-per-cent and deferred stocks were issued, 

amounting to 6,294,051 12 

Certificates of three-per-cent stock were surrendered, 

to the amount of 2,861,309 15 

In lieu of which, certificates of converted stock were 

issued, amounting to 1,859,850 70 

So glibly did the reduction of the public debt proceed, 
that the salt-tax, which yielded about half a million a 
year, was abandoned in 1806; and both the President 
and Gallatin voiced their oft-recurring dream of founding 
a splendid system of higher education for the people, 
and of constructing a vast net-work of improved ways 
of communication through all parts of the country. 
Gallatin spent a year in working out the scheme, and 
presented it to Congress in 1808. 

But this glorious vision, so joyfully beheld, and so 
dearly cherished, was soon to disappear. The rumbling 
of war was heard in the distance. Gallatin's annual 
report for 1807 contains some weighty words which show 
clearly enough that he was thinking of the dark possi- 
bilities of the future. " A previous accumulation of 
treasure," he remarks, "in time of peace, ought, in a 
great degree, defray the extraordinary expenses of war, 
and diminish the necessity of other loans or additional 
taxes. It would provide, during periods of prosperity, for 



70 FINANCIAL HISTORY OF THE UNITED STATES. [1808. 

those adverse events to which every nation is exposed, 
instead of increasing the burdens of the people at a time 
when they are least able to bear them, or of impairing, 
by anticipations, the resources of ensuing generations. 
And the public moneys of the United States not being 
locked up, and withdrawn from the general circulation, 
but, on the contrary, deposited in banks, and continuing 
to form a part of the circulating medium, the most for- 
midable objection, which has, nevertheless, been at times 
adopted with considerable success in other countries, is 
thereby altogether removed." Gallatin then considered 
the utility of renewing the bank charter; nor did he 
shrink from tracing the disastrous consequences to the 
revenue, should ' the United States, contrary to their 
expectation and desire, be involved in war." 

It is true, that, in his report for the year 1808, Gallatin 
was able to announce a larger income than ever, exceed- 
'ing 816,000,000. But an embargo which greatly dimin- 
ished imports was in operation, and the receipts into the 
treasury had been largely derived from duties accruing 
the previous year, and from the diminution of payments 
in the way of drawbacks. The following year the expen- 
ditures, excluding payments of the principal of the debt, 
exceeded the revenue from all sources nearly $1,300,000. 
There was a surplus, however, for the year 1810, of 
$5,000,000. This was the effect of the system of open 
trade, which was established for a short interval during 
the year. But when the embargo was revived, gloom 
settled over the land, and the revenues rapidly shrank. 
Notwithstanding these events, Gallatin was able, the next 
year, to pay 15,163,376 of the debt. More than half this 



1811.] PAYMENT OF THE REVOLUTIONARY DEBT. 71 

sum was borrowed of the United-States bank; and the 
actual decrease of the debt, during the year, was only 
$2,413,376.! 

During these eleven years, $46,022,810 of the funded 
debt had been paid, and $45,154,189 remained, which in- 
cluded $11,250,000 incurred for the purchase of Louisiana. 

The disposable national revenue, or that portion which 
might be applied in defraying the annual national expendi- 
ture, consisted only of the surplus of the gross amount of 
revenue collected, beyond the amount necessary for pay- 
ing the interest on the public debt. To diminish that 
interest, therefore, was to increase the amount for defray- 
ing the other annual expenses of the government. With 
an equal amount of gross revenue, the revenue which 
might be applied in defraying the national expenses in 
consequence of the reduction of the debt was $2,600,000 
greater than in April, 1801. 2 

During the last eight years, $8,000,000 had been paid 
annually on account of the principal and interest of the 
debt. No other portion was reimbursable after the end 
of 1811, except the residue of converted stock, which 
amounted only to $565,000. The whole amount payable 
after the year 1812, including the annual reimbursement 
on the six-per-cent and deferred stocks, was $3,792,382, 
making an annual difference of more than $4,200,000 
which would be liberated from that appropriation. More- 
over, this annual payment of less than $4,000,000 would 
have been sufficient, with some small variations, to dis- 
charge, in ten years, the remainder of the debt, excepting 

1 Gallatin's Anuual Report, December, 1810. 

2 Gallatin's Annual Report, November, 1811. 



^ 



72 FINANCIAL HISTORY OF THE UNITED STATES. [1811. 

the three-per-cent stock, the interest on which was only 
1485,000. The war, however, delayed the consummation 
of the desired end twelve years longer, or ujitil 1834. 

The redemption of the debt had been effected without 
the aid of internal taxes, either direct or indirect, and, 
during the last seven years, without any addition to the 
rate of duties on importations. But it should be remem- 
bered that an increase of two and a half per cent ad valo- 
rem duties, known as the " Mediterranean fund," was 
imposed soon after the repeal of the internal duties. The 
salt-tax, though, had been removed ; and, during the last 
four years, there had been a great diminution in American 
commerce, and the revenues of the government had suf- 
fered severely in consequence of this unhappy event. 

"It therefore proves decisively," said Gallatin in his 
report for 1811, "the ability of the United States, with 
their ordinary revenue, to discharge, in ten years of 
peace, a debt of $42,000,000, — a fact which considerably 
lessens the weight of the most formidable objection to 
which that revenue, depending almost solely on commerce, 
appears to be liable. In time of peace, it is almost suffi- 
cient to defray the expenses of a war : in time of war, it 
is hardly competent to support the expenses of a peace 
establishment. Sinking, at once, under adverse circum- 
stances, from fifteen to eight millions of dollars, it is only 
by a persevering application of the surplus which it affords, 
in years of prosperity, to the discharge of the debt, that 
a total change in the system of taxation, or a perpetual 
accumulation of debt, can be avoided." 



1789.] TAXATION OF IMPOSTS. 73 



CHAPTER V. 

TAXATION OF IMPORTS. 

When the members of Congress assembled for the first 
time, poverty was written on more than one face, as well 
as on the door of the public treasury. Even Washington, 
during the earlier days of his administration, was obliged 
to borrow money, and pay heavy interest, to maintain him- 
self and his household. To supply the immediate wants 
of the government, Hamilton negotiated several loans 
with the Bank of New York, 1 and addressed a letter to 
the American bankers in Holland, asking for a provisional 
loan of three million florins. 2 There was no law author- 
izing these loans, and they were speedily discharged ; but 
the need of money was so great, that no one ever ques- 
tioned the propriety of Hamilton's conduct in making 
them. In one of his earliest communications to the House, 
he declared that "obvious considerations dictate the pro- 
priety, in future cases, of making previous provision by 
law for such loans as the public exigencies may call for, 
defining their extent, and giving special authority to make 
them." 3 Thus he clearly recognized the impropriety of 

1 Hamilton's Statement to the House, Jan. 11, 1793, 1 Finance, p. 185. 

2 Hamilton's Hist, of Repub., vol. iv. pp. 32, 48. 

3 Hamilton's Report on Additional Estimates for 1790, 1 Finance, 
p. 38. 



74 FINANCIAL HISTORY OF THE UNITED STATES. [1789. 

his action furnishing a precedent, either for, himself or for 
subsequent secretaries, to borrow money without the au- 
thority of Congress. 

The most pressing business of Congress, therefore, was 
to provide a revenue for the maintenance of the govern- 
ment. Madison introduced a resolution for the establish- 
ment of an impost similar to the one discussed in the 
Congress of the Confederation in 1783. The bill imposed 
specific duties on a few enumerated articles of general 
consumption, and an ad valorem duty of five per cent on 
others. A tonnage duty also was added, which gave a 
preference to American over foreign vessels, and discrimi- 
nated in favor of those nations with which the United 
States " were in treaty." 

Hamilton was opposed to framing any permanent bill, 
because Congress did not know enough about the subject 
to legislate wisely. He proposed, therefore, that a general 
ad valorem duty should be charged on all importations. 
Madison thought otherwise. He believed that Congress 
could safely go further toward a definitive solution of the 
question. There were others who urged the adoption of 
such a tariff as would encourage and protect home manu- 
factures. The members from Pennsylvania pressed this 
view with considerable zeal ; and they offered a resolution 
enumerating the articles, the manufacture of which they 
proposed the government should " encourage and pro- 
tect." Madison contended that it was the duty of Con- 
gress to protect national as well as local interests, and 
that the States, having surrendered the power of protec- 
tion, had a right to expect it from the general govern- 
ment. Various discriminative duties were proposed, some 



1789.] TAXATION OF IMPORTS. 75 

avowedly prohibitive. During the discussion of the meas- 
ure, petitions were presented from various quarters in favor 
of a revenue system, the chief object of which should be 
to foster " domestic industry." 

The discrimination in the tonnage duty proposed by 
Madison caused an exciting debate. Some members con- 
tended for a discrimination in favor of France, in requital 
for the debt of gratitude which America owed to her, 
and which ought not to be forgotten. There were those, 
however, who saw that the present situation required the 
maintenance of a perfect neutrality on the part of the 
American Government toward other nations. "Nations 
in treaty " could not supply all the shipping needed : 
hence that of Great Britain would be required to trans- 
port our produce. Such a discrimination, therefore, 
would operate as a bounty to foreigners and as a tax 
on ourselves, and would be regarded as retaliatory. 
Great as was the debt of gratitude owing to France, 
the discrimination proposed was too heavy a charge to 
be borne by the American people in return for past 
favors. 

Congress finally decided, "whereas it was necessary 
for the support of government, for the discharge of the 
debts of the United States, and the encouragement and 
protection of manufactures, that duties be laid on goods, 
wares, and merchandises imported," to levy specific as 
well as ad valorem duties, allowing drawbacks on goods 
exported within a year, and a discount of ten per cent 
on goods imported in vessels which were owned entirely 
in the United States. To the ships of all foreign nations 
engaged in American commerce, an equal advantage was 



76 FINANCIAL HISTORY OF THE UNITED STATES. [1790. 

given. The measure was to continue in force until the 
end of the session of Congress held after the first day of 
June, 1796. 1 Hamilton advocated the raising of "per- 
manent funds" as the only basis for the adequate sup- 
port of public credit. 

This Act was speedily followed by another, which regu- 
lated the duties charged on all ships or vessels entering 
the ports of the United States. A discrimination was 
made in the beginning in favor of American owners. 
They were required to pay only six cents per ton, and 
foreign owners fifty. On vessels owned partly in this 
country, and in part abroad, a duty of thirty cents per 
ton was levied. 2 

At the second session, higher rates, both specific and 
ad valorem, were substituted. The lowest ad valorem 
duty was five per cent ; but it was not levied on so many 
articles. The free list was somewhat extended in those 
directions which were thought to be helpful to manufac- 
tures and agriculture. It was further declared that the 
duties thus levied should be continued until the debts 
and purposes for which they were appropriated were 
satisfied. Congress, however, reserved the right to sub- 
stitute other duties or taxes of equal value. 3 

1 Act, July 4, 1789, 1 Cong., first session, chap. 2. " There were no pro- 
hibitory views entertained in the Act; but the idea of incidental protec- 
tion that the necessary duties would afford to the manufactures, started 
into life during the war, was held out to counteract, in some degree, the 
popular prejudices against all taxation. The political prejudice against 
British goods, which existed before the war, was appealed to, under the 
Union, to make taxation palatable." — Bern. Rev., September, 1846. 

2 Act, July 20, 1789, 1 Cong., first session, chap. 3. 

8 Act, Aug. 10, 1790, 1 Cong., second session, chap. 39. 



1813.] TAXATION OF IMPORTS. 77 

The next year the duties on imported spirits were 
increased from twenty to forty cents a gallon, and a tax 
was laid on spirits distilled at home. In consequence of 
the large outlay to protect the frontier, several of the 
duties were increased at the following session of Con- 
gress. 

Thus the duties grew heavier annually ; yet, when the 
government was six years old, the burden of taxation 
did not cause any dissatisfaction, unless, perhaps, the 
duty on salt was regarded as too great. Even that was 
not very keenly felt, and might have been deemed mod- 
erate, compared with the tax imposed by some govern- 
ments. Gallatin said it was higher, in proportion to the 
value of the article, than that paid on any other, and 
that, whatever impediment might exist in the way of its 
repeal from the difficulty of finding a substitute, it would 
be equally unjust and impolitic to raise it above the 
present rate. So far as the article was consumed by man, 
it was a species of poll-tax, which fell alike on the poor 
and rich: when consumed by cattle, it was a tax on 
agriculture, and would prove pernicious if ever increased 
so high as to check its use. 1 

Between 1789 and 1812, thirteen tariff laws were 
enacted, the general scope of which was to increase the 
duties as well as the number of dutiable articles. 2 The 

1 Writings of Gallatin, vol. iii. p. 82. 

2 In 1793 Jefferson made a report on " the privileges and restrictions on 
the commerce of the United States in foreign countries." For this docu- 
ment the House had called in 1791; hut two years passed hefore Jefferson 
reported. There was much excitement then concerning our relations with 
France and Great Britain. The national sympathy toward France was as 
hearty and universal as was the hatred toward Great Britain. The re- 



78 FINANCIAL HISTORY OF THE UNITED STATES. [1789. 

increase was for the purpose of meeting the expenditures 
of the government, and the payment of the national 
indebtedness. But the protection of American indus- 
tries was not ignored, as the history of the proceedings 
of Congress clearly shows. 1 The subject, however, did not 
assume such importance in the debates of that body as 
it has subsequently acquired. One reason was, because 
public sentiment was so strongly united. The reports 
of the committees of Congress, and the subsequent de- 
bates thereon, show very clearly that the protection of 
American industries from foreign competition was a 
principle very widely accepted. Wherever may lie the 
truth respecting free trade and protection, as the subject 
is popularly termed, there is no question whatever, that 
in the earlier history of the Republic the tide of public 
opinion set more strongly in the direction of govern- 
mental protection than it does to-day. The atmosphere 
was heavily charged at that time with the idea of improv- 
ing home industries. 

Throughout the Colonial period the English Govern- 
ment had sought to restrain every kind of domestic manu- 
facture unfavorably affecting the manufacturing interests 
of the parent-country. The jealousy of the English Gov- 



port recommended a system of discriminating duties in favor of France, 
and against British products. Hitherto he had heen opposed to protective 
duties of every kind; but in this his last official report as secretary of 
state he did not hesitate to recommend them. — Gibe's Adm. of Wash, and 
Adams, vol. i. p. 119. The report caused a lengthy debate, which ended 
with the rejection of the system proposed by Jefferson. 

1 A committee of the House recommended the granting of a loan of 
eight thousand dollars to a glass manufacturer who had suffered loss by 
fire; but the report was not adopted. — 1 Finance, p. 62. 



1789.] TAXATION OF IMPORTS. 79 

ernment in this regard, and of its manufacturing classes, 
is a familiar fact of history. The colonists were permit- 
ted to plant, sow, and reap, to live and labor for their 
happiness and prosperity, so long as they did not mar the 
peace and prospects of their English brethren across the 
ocean. 

With the acknowledgment of independence by Great 
Britain, and the establishment of peace, blessed as that 
peace was, it could not efface all the wrongs of the past. 
The spirit which the English manufacturer and his gov- 
ernment had manifested toward America could not be 
speedily forgotten. The recollection of these things 
contributed very much in coloring the early tariff legis- 
lation of this country. We were more eager to manu- 
facture and to wear homespun goods because of the 
treatment we had received from our English mother. 
The manufacturing of goods in the United States 
at that period was not a business merely of dollars 
and cents. Let any one read the literature of the 
time, and he will find that home manufactures were 
encouraged, not solely to get them cheaper, either 
immediately or prospectively, but because revenge was 
sweet, even if purchased at considerable cost to the 
avenger. 

In 1789, when the first tax on imports was im- 
posed, there were several circumstances which favored 
the experiment of home manufacturing. The value 
of labor, provisions, fuel, rents, and raw material, were 
much lower than they had been, and cotton-machines 
to some extent had been introduced. Hemp had risen 
in Russia thirty or forty per cent; and this advance 



80 FINANCIAL HISTORY OF THE UNITED STATES. [1789. 

afforded a protection to the American cultivator of 
that product. 1 

The desire, too, for European manufactures and luxu- 
ries, which spread after the close of the war, had been 
checked. " Ashamed of our folly," says a writer, " and 
alarmed at the danger we were in, a serious change was 
generally resolved on, and has generally taken place, as 
beneficial to home manufactures as our former habits were 
injurious. Buckskin breeches and gloves, home-made 
jeans and cottons, homespun stockings of thread, cotton, 
and worsted, American porter, beer, and cheese, and 
many other articles, have become fashionable in dress, 
and familiar in diet; and in general a greater sim- 
plicity and frugality has been introduced into our 
families." 2 

But an emptying of private purses was not less potent 
in causing this return to home productions, and to greater 
simplicity of living, and sharper economy, than pure 
patriotism, and a revengeful remembrance of ill treatment 
by the mother-country. Imports of merchandise had 
greatly exceeded exports, and the balance could be liqui- 
dated only in specie. This was soon exhausted. Credit 
did not exist ; and the people could not do otherwise than 

i Hamilton, in his famous report on manufactures, after enumerating 
seventeen kinds of manufactures which were flourishing in the country, 
including iron, cotton, wool, flax, and hemp, adds, " Besides manufacto- 
ries of these articles, which are carried on as regular trades, and have 
attained to a considerable degree of maturity, there is a vast scene of 
household manufacturing, which contributes more largely to the supply 
of the community than could be imagined, without having made it an 
object of particular inquiry." 

2 Tench Coxe, Am. Museum, vol. iv. p. 344. 



1800.] TAXATION OF IMPORTS. 81 

curtail their purchases of foreign goods, whatever might 
be their wishes. 1 

The destruction of our credit, therefore, was a blessing 
to the home manufacturer. Nor was the blessing of less 
consequence to "the landed gentlemen throughout the 
Union." " They now suddenly see," says a writer of that 
period, "that it is their interest to purchase home-made 
articles at a given price, rather than imported ; because the 
foreign manufacturer calls not for their produce, either 
for provisions or raw materials, but the American manu- 
facturers must necessarily consume both." Accordingly, 
a new movement was begun to extend American manu- 
factures. The movement became general. The literature 
of the day was full of appeals, addresses," and resolutions 
setting forth the duty of the people to encourage home 
industry. 2 

Not only did this spirit permeate the people during the 
administrations of Washington and Adams : it continued 
for a long period without any perceptible abatement. 
Memorials were presented to Congress from every quar- 
ter, — from gun manufacturers, bottlers, iron, copper, 
leather, and twine manufacturers, the cultivators of hemp, 
the distillers of ardent spirits, and from other sources. 
Some of these memorials were very elaborate, like the 

1 Gov. Sullivan of New Hampshire, in an address, said, "This balance 
of trade against a nation, like a whirlpool, drains off the circulating cash, 
and leaves the people ' poor indeed.' This among others (which it is not 
my province to name) is a great cause of the scarcity of money among us 
at this day, and is one principal foundation of our present distress. We 
feel the evil, and complain, though very few attempt to discover its source. " 
— Am. Museum, vol. v. p. 577. 

2 Am. Museum, vol. v. frequent references. 



cS2 FINANCIAL HISTORY OF THE UNITED STATES. [1804. 

memorial presented by the artisans and manufacturers of 
Philadelphia. 1 They set forth at considerable length the 
reasons why a large number of articles, even of the first 
necessity, manufactured for the United States by foreign 
nations, were produced here less advantageously. Briefly 
stated, the reasons were, foreign fashion, 2 the overstock- 
ing of the American market with foreign goods, unjust 
competition with foreign manufacturers, the expense 
necessarily attending the commencement of complicated 
manufactures, and, lastly, duties injudiciously laid on raw 
materials or goods partially manufactured. 

During the first and second sessions of the seventh Con- 
gress, applications for protection rapidly multiplied. A 
report thereon was made by the committee of commerce 
and manufactures. A succinct history of the efforts to 
protect home industries was given. One mode of encour- 
aging them had been to exempt imported raw materials 
from taxation : consequently, wrought iron and unwrought 
burrs were thus admitted ; so were the bristles of swine, 
the regulus of antimony, rags, saltpetre, and sulphur. 
These exemptions were made for the purpose of aiding 
those who used these things in the manufacture of other 
commodities. Another mode of encouraging manufac- 
tures was "by laying higher or prohibitory duties on 
manufactured articles imported." A third mode was with- 
holding a drawback from articles of foreign manufacture 
subsequently exported. Such a policy was adopted with 
reference to loaf and refined sugar. A fourth mode of 

i Presented Dec. 9, 1803, 

2 For prejudice against the use of American paper, see Niles, vol. i. 
p. 462, note. 



1804.] TAXATION OF IMPORTS. 83 

encouragement was the allowance of a drawback on 
domestic manufactures equal to the duty paid on the 
imported raw materials used in such manufactures. A 
drawback, therefore, was allowed on the re-exportation 
of sugar refined from the foreign material, and on rum 
distilled from molasses. A final mode of encouragement 
was the bestowal of direct bounties, which were received 
by fishermen engaged in curing and exporting fish. 

" From this view of the proceedings of Congress," say 
the committee, " it will appear that much has been done 
already to encourage the domestic industries of our citi- 
zens. Industry, under such aids as the government by 
these means has given, at a time when population is 
so rapidly . increasing, has caused useful arts and manu- 
factures to rise up and thrive in almost every part of the 
country. Our works in wood, copper, hemp, leather, and 
iron, are really excellent and extensive ; and if we do not 
excel in the manufacture of the finer articles of cotton, 
silk, wool, and the metals, we may felicitate ourselves, 
that, by reason of the ease of gaining a subsistence and 
the high price of wages, our fellow-citizens born to hap- 
pier destinies are not doomed to the wretchedness of a 
strict discipline of such manufactures." The committee 
continue in the following exulting strain : " Our citizens 
are distinguished for their ingenuity and skill. They have 
invented many expedients by machinery to shorten and 
cheapen labor. The machines for making wool and cot- 
ton cards, the machines for ginning cotton, the machines 
for cutting and heading nails, the machine^ for elevating 
wheat and for raising and stirring meal in mills, and the 
improvements in the manufacture of muskets, class with 



84 FINANCIAL HISTORY OF THE UNITED STATES. [1804. 

all the most useful inventions with which the age has 
been adorned." 

The conclusions of the committee were in harmony with 
their reasonings. The secretary of the treasury, comply- 
ing with a resolution of Congress, had prepared a plan for 
levying new and more specific duties. This report formed 
the basis of the calculations of the committee. They 
recommended that rags of linen, cotton, woollen, and 
hempen cloths, bristles of swine, regulus of antimony, 
unwrought burr-stones, saltpetre, and the bark of the 
cork-tree, should be admitted without payment of a duty, 
though previously a duty of twelve and a half per cent 
had been exacted. The duty on brushes and black bot- 
tles, of twelve and a half per cent, was doubled ; that on 
fur hats and plated ware was raised from fifteen to twenty 
per cent, and on stone-ware, window-glass, and cannon- 
balls, from fifteen to twenty-five per cent. Foreign pickled 
and dried fish, on which a duty of twelve and a half per 
cent ad valorem was levied, were to be subjected to a duty 
of a dollar and a half per barrel for the former, and a 
dollar per quintal for the latter. A duty of three cents a 
pound on starch, and four cents a pound on hair-powder 
and glue, was charged in lieu of the present duty of 
fifteen per cent ad valorem. On calicoes and gunpowder 
the duty was raised from twelve and a half to fifteen per 
cent. The duties exacted on tarred cordage and cables, 
of a dollar and eighty cents per hundred, and on un tarred 
cordage, two dollars and a quarter, were changed to two 
cents per pound on the former, and, on the other, half a 
cent more. 

The report of the committee was adopted. By so 



lsio.] TAXATION OF IMPORTS. 85 

doing was signified the desire of Congress to encourage 
the development and growth of home industries, — to 
continue that " sound policy," which, in the language of 
the preceding committee of commerce and manufactures, 
pointed to the necessity of granting governmental aid for 
the protection of such manufactures as were obviously 
capable of affording the United States an adequate supply 
of their several and respective objects, either by admitting 
free of duty the Taw articles essential to their manufac- 
ture, and which could not be procured in the United 
States, or by imposing a higher duty than was paid on 
those articles which our citizens were not able to manu- 
facture. 1 - 

It may be remarked, that, beside the protection thrown 
over the manufacturing interest by Congress during this 
period, the wars which raged in Europe produced a favor- 
able effect. American commerce rode the waves of an un- 
expected and brilliant prosperity. As the United States 
was a neutral nation, she fattened on the miseries of 
the European nations, and her commerce increased with 
astonishing rapidity. She excited the envy and jealousy 
of the English Government, whose commerce was rapidly 
diminishing. To her this was the most bitter part of the 
cost to subdue Napoleon. Our manufactures flourished 
from the same cause, though not to a corresponding de- 
gree with our commerce. 2 

Notwithstanding these favoring circumstances, the 

1 Mitchell's Report, Jan. 25, 1804, 2 Finance, p. 80. 

2 Memorial to Congress of N. Y. Convention of Dom. Industry, Janu- 
ary, 1833. Memorial to Congress of Lewis Sanders and others, Jan. 22, 
1811, 2 Finance, p. 465. Gallatin's Report on Manufactures, April 19, 1810, 
2 Finance, p. 425. 



86 FINANCIAL HISTORY OF THE UNITED STATES. [1788. 

early impediments with which American manufacturers 
contended were very great. There was a lack of work- 
men, especially of those possessing much skill. Wages 
usually were high, and machinery could not be easily pro- 
cured. Foreign manufacturers were wide awake to the 
determination of keeping all machinery from the country 
that would enable us to manufacture at better advantage. 
In 1787 two carding and spinning machines, which were 
in the possession of a person in Philadelphia, and " which 
were calculated to save the labor of no less than one hun- 
dred and twenty workmen daily," were purchased by the 
agency of a British artisan, packed in cases as common 
merchandise, and sent to Liverpool. The object of pur- 
chasing these machines was to get them away. 1 The 
hostility to American manufacturing was manifested in 
another way during the same period. Experiments were 
then rife for introducing the cotton-plant into the coun- 
try. Whether the English manufacturer at that early day 
foresaw the adaptation of the plant to the climate and soil, 
we do not know , but, with the vain hope of destroying 
its cultivation, and preventing its manufacture, a consid- 
erable quantity of cotton-seed was purchased and burned 
in Virginia by a British agent. 2 The same spirit contin- 
ued for years, and was exhibited in many unexpected and 
exasperating ways to the American manufacturer. 3 

1 Am. Museum, vol. iv p 342. 

2 Ibid., p. 345. Niles, vol. x. pp. 322, 323. 

3 "It seems that two machines for spinning and carding were with 
much difficulty obtained in this country at Philadelphia as early as 1788. 

. The English prohibited the export of the cotton-machinery, as well as 
the emigration of their mechanics, under such penalties as delayed the 
introduction of it here, and caused the price of machinery for many years 



1789.] TAXATION OF IMPOBTS. 87 

At first, duties were both specific and ad valorem. Both 
kinds have been levied during the greater period of our 
history, but on several occasions the current has run more 
strongly toward one system than the other. Hamilton, in 
the last communication he ever made to the House, favored 
the contraction of the ad valorem system, and the exten- 
sion of specific duties. The reason for the change, he 
declared, was obvious. " It is to guard against evasions, 
which infallibly happen, in a greater or less degree, where 
duties are high. It is impossible for the merchants of any 
country to have manifested more probity than those of the 
United States on this subject, and it is firmly believed that 
there never was one in which illicit practices to the disad- 
vantage of the revenue have obtained so little, hitherto, as 
in this ; yet it would be a delusive expectation, that, with 
duties so considerable as those which now exist, a dispo- 
sition will not be experienced in some individuals who 
carry on our import trade to evade the payment of them, 
and this to an extent sufficient to make it prudent to 
guard with circumspection, and by every reasonable pre- 
caution, against the success of such attempts." 1 Hamilton 
offered to "digest the details of a plan for this pur- 
pose , " but, resigning shortly afterward, the bill was 
never drawn, and so the old system, constantly modified, 
was continued. 

As soon as the tariff-law was passed, it was necessary 
to provide for the collection of the duties imposed. The 

to be so high here as to retard, and almost defeat, successful competition." 
— Sec. Woodbury, Report on Cotton, March 4, 1836, No. 146, 24 Cong., first 
session, p. 57. 

1 Works of Hamilton, vol. iii. p. 529. 



88 FINANCIAL HISTORY OF THE UNITED STATES. [1789. 

principal officers for collecting the revenues were divided 
into three classes, — collectors, naval officers, and survey- 
ors. The States were divided into districts: and some 
of the ports were designated as places where goods might 
be entered and delivered ; at other ports there could be 
only a delivery of goods. To every district a collector 
was appointed , to many of them a surveyor was added , 
but a naval officer was attached only to a few. At those 
ports where the three officers were appointed, it was the 
duty of the collector to receive all reports and other docu- 
ments given to him by the commander of any vessel, and 
to make a record of them ; to receive the entry of all ves- 
sels and merchandise, with the invoices thereof; to esti- 
mate the duties payable thereon, to receive the money 
paid for them, and to take the bonds for securing their 
payment , to grant permits for the unloading and delivery 
of goods, and to employ proper persons as weighers, gau- 
gers, measurers, and inspectors at the several ports within 
his district. He was also to provide at public expense, 
and with the approval of the principal officers of the treas- 
ury deparment, storehouses for the safe-keeping of goods. 
The naval officer was required to receive copies of all 
manifests, to estimate and record the duties on each entry 
made with the collector, and to correct any error therein, 
before a permit to unload or deliver was granted. The 
duties of the surveyor were more extensive. He was 
required to superintend and direct all inspectors, weigh- 
ers, measurers, and gaugers, and the employment of the 
boats which might be provided for securing the collection 
of the revenue ; to place on board every vessel, as soon as 
it arrived, an inspector to rate the distilled spirits forming 



1789.] TAXATION OF IMPORTS. 89 

the cargo, and to ascertain whether the goods imported 
were comformable to the entries made of them. The 
surveyor was always the servant of the collector and 
naval officer. When a collector only was assigned to a 
port or district, as was the case generally, he performed 
the duties of naval officer and surveyor; and, when a col- 
lector and surveyor were assigned, the former performed 
the duties of naval officer. The collection of duties was 
to begin the fifteenth day of August, 1789, and on ton- 
nage fifteen days afterward. 1 

As the law for collecting them did not pass until July, 
it was impossible to appoint and commission all the reve- 
nue officers in time for them to put the law in operation 
on the day prescribed. The custom-houses were organ- 
ized in the several States during the months of August 
and September, and in the interval a number of impor- 
tations occurred. In some instances duties were paid 
under State laws : in other cases none were paid. 

Hamilton considered that duties accrued on all impor- 
tations after the day specified for their collection. A 
claim for them was made with a view of getting a legal 
decision thereon. Nevertheless, he questioned the expe- 
diency of collecting duties on merchandise which had 
been thus imported. The enforcement of the claim, he 
thought, might be regarded rigorous, and in some cases 
injurious, especially when goods had been sold without 
reference to the duty. 2 Besides, it would not be easy to 
ascertain what ought to be paid. His opinions were 
shared by Congress , and accordingly it was enacted that 

1 Act, July 31, 1789, 1 Cong., first session, chap. 5. 

2 Works, vol. iii. pp. 54, 55. 



90 FINANCIAL HISTORY OF THE UNITED STATES. [1789. 

all duties which had accrued between the 15th of August 
and the time when each collector entered his office 
should be remitted, and, if any one had paid duties to 
the government during that period, restitution should be 
made. 

In executing the law, collectors at first followed the 
regulations which had previously been adopted by the 
States ; but Hamilton, notwithstanding the variety and 
difficulty of his labors, soon established a system of rules 
for their guidance. The collectors were required to ren- 
der a weekly account of their receipts and expenditures 
to the treasurer, to report the defects which should be 
discovered in executing the law, and to make full returns 
of the work of their offices. Bonds taken for duties, if 
not paid as stipulated, were to be put immediately in 
suit : indeed, " the most exact punctuality would be con- 
sidered indispensable." " Resolutions," Hamilton added, 
"under State laws, may give an air of rigor to this in- 
struction." But he regarded its strict observance essen- 
tial, " not only to the order of the finances, but even to 
the propriety of the indulgence which the law allowed 
of procrastinated terms of payment of duties." Indeed, 
very complete instructions were given to the collectors 
to guide them in performing their untried duties. 1 

It was not expected that the law, prepared with so 
much necessary haste, would operate perfectly. Defects 
soon began to appear. These were afterwards made 
known to Congress by Hamilton. At the next session 
most of the provisions were repealed ; and another law was 
passed, which continued in force until 1799, when a still 

1 Hamilton's Hist, of Eepub., vol. iv. pp. 39-41. 



1800.] TAXATION OF IMPORTS. 91 

more elaborate statute was enacted, which has served as 
the groundwork of all subsequent legislation. 1 

For many years Gallatin affirmed, that, notwithstand- 
ing the gradual increase of duties, they were faithfully 
paid, and that the frauds so often committed on the fair 
trader and the public, in countries where a large revenue 
was derived from customs, were comparatively few in the 
United States. The whole amount of fines and forfeit- 
ures incurred for a period of five years and a half, for 
breaches of the revenue laws, which, during the same 
time, had yielded a net revenue of 117,000,000, did not 
much exceed $9,000. Tea, however, formed an excep- 
tion, as the consumption for the years 1793 and 1794 was 
only one-half as great as for the two previous years. The 
temptation offered by the high duty and the small bulk 
of the article pointed out the true remedy, namely, a 
decrease of the duty. 2 

At a later period it was remarked by a committee of 
Congress, that the duties on wines had been so injudi- 
ciously laid as to produce a strong temptation to enter 
high-priced wines, which paid a very high duty, under 
the names of low-priced ones, paying a duty compara- 
tively low. This fraud had been extensively practised. 3 

When the new government had been in operation 
twenty years, a very interesting and instructive report 
was made, concerning " the principles and practice " 
adopted by the treasury department in "mitigating or 



1 Act, March 2, 5 Cong., third session, chap. 22. 

2 Writings of Gallatin, vol. iii. p. 82. 

3 Harper's Report on Additional Revenues, April 30, 1800, 1 Finance, 
p. 642. 



92 FINANCIAL HISTORY OF THE UNITED STATES. [1813. 

remitting" the fines, penalties, and forfeitures incurred 
under the revenue laws. Congress had confided to the 
secretary of the treasury a very broad and delicate 
authority in the matter, which, happily, had been "used 
in a manner liberal and just." He was vested with 
power to mitigate or remit a fine, forfeiture, or penalty, 
or to remove the disability, or any part thereof, if in his 
opinion it had been incurred without wilful negligence 
or any intention of fraud, and to direct prosecutions to 
cease on such conditions as he deemed reasonable and 
lust. To obtain the benefit of this law, however, it was 
necessary to have the facts in every case determined by 
a judge of a district court of the United States, who then 
transmitted the record to the secretary of the treasury 
for his decision. 

In exercising his authority, Gallatin declared, that, in 
deciding those cases to which the power of remitting in 
whole or in part applied, and in graduating the amount 
of penalty in those where it appeared improper to grant 
an unqualified remission, he had been invariably gov- 
erned by the following principles : first, enforcing the 
laws ; second, reducing the penalty to that amount, and 
requiring only that portion which appeared sufficient for 
the purpose of preventing infractions ; and, third, uniform 
rules of decision, so far as the diversity of cases rendered 
them practicable. In applying these principles to individ- 
ual cases, several circumstances were considered, — the 
degree of negligence manifested by the party, the impor- 
tance for the safety of the revenue of the particular pro- 
vision which had been infringed, the encouragement due 
to the vigilance of the officers, and, when necessary for 



1813.] TAXATION OF IMPORTS. 93 

the purpose of checking illegal importations, the profit 
derived from the transaction. But the gain to the treas- 
ury had never influenced him, or " even been thought of," 
in making a decision. 

The number of cases decided by Gallatin was twelve 
hundred and ninety-seven. In ninety-two of these, he 
decided there was an intention to defraud the govern- 
ment, and no remission was granted. Absolute remission 
had been granted in eight hundred and eighty-eight cases, 
generally on payment of costs, and in three hundred and 
seventeen cases the fines had been mitigated. In about 
two-thirds of these, nothing more had been inflicted than 
the payment of sums, generally inconsiderable, which 
were given to the custom-house officers. The expenses 
incurred in prosecuting for offences against the revenue 
laws considerably exceeded the amount actually recov- 
ered, and paid into the treasury. Those penalties, there- 
fore, had not been a source of revenue. 1 

Individuals were constantly applying to Congress for 
remission of duties in cases not provided by law, but in 
the collection of which it was urged some peculiar hard- 
ships would be sustained. In one case, a large amount 
of goods had been landed in New York, and a fire had 
occurred, destroying the warehouse and its contents. 
Applications were founded on a great variety of circum- 
stances too numerous to describe. Not infrequently, 
when the secretary had decided against an applicant for 
the remission of a fine or forfeiture, Congress was asked 
to grant relief. Cases of this character were so numer- 
ous, that the reader may be led to ask, Why was not a 

1 Quincy's Report on Fines, etc., Feb. 27, 1813, 2 Finance, p. 615. 



94 FINANCIAL HISTORY OF THE UNITED STATES. [1790. 

proper tribunal instituted for disposing of them, instead 
of dividing the power and responsibility between the 
secretary of the treasury and Congress? Surely, the 
creation of an adequate tribunal, composed either of 
existing officials or of other persons, would have relieved 
Congress and the secretary of the treasury from the 
performance of a duty which could have been more sat- 
isfactorily performed than it had been. 

Applications were often made to Congress to grant 
relief to those who had given bonds to secure the pay- 
ment of duties. This was more especially the case with 
those who had become sureties. In another class of cases, 
the applicants sought to obtain a drawback. Such cases 
were very frequent. 

In the beginning, Congress provided that all duties on 
imported merchandise, except brandy and geneva, which 
was re-exported, should be returned within a specified 
time. One per cent of the duties, however, was retained 
to cover the expense of entering and storing such mer- 
chandise. With respect to salted fish and provisions, the 
law provided an allowance " in lieu of a drawback of the 
duties imposed on the importation of the salt employed 
and expended therein." A glaring defect in the law was 
soon discovered. A vessel arriving from a foreign port, 
with a portion of her cargo destined for the United States, 
was obliged to pay duties on the whole, and even to land 
those articles which required weighing, measuring, or 
gauging, in order to ascertain the duties. Nor did the 
allowance of drawbacks obviate the difficulty. 1 This was 

1 Sec. Hamilton's Report on the Operations of the Act laying Duties on 
Imports, April 23, 1790. 



1790.] TAXATION OF IMPORTS. 95 

a very serious defect in the law, but, like other defects, 
could not be remedied until the next session of Congress, 
when the law was thoroughly revised. 1 

The original design of the law for raising a revenue on 
imports was to tax consumption, and the allowance of a 
drawback was to favor trade. 2 In his famous report on 
manufacturing, Hamilton recommended the exemption 
from duty of nearly all materials employed in manufac- 
tures. To this rule, he remarked, there should be some 
exceptions. Three examples, illustrating three classes of 
exceptions, were given. In the first example, the material 
itself was extensively consumed, and consequently a fit 
and productive source of revenue. Such a commodity was 
molasses. It was "just that the consumers of it should pay 
a duty, as well as the consumers of sugar." Another excep- 
tion was that of a manufacture the competition of which 
with a similar domestic article it was desirable to restrain. 
The manufacture itself partook of the nature of a raw 
material, and, by a further process, could be converted 
into a manufacture of a different kind, the introduction 
or growth of which it was desirable to encourage. Cot- 
tons and linens in their white state fell under this descrip- 
tion. A duty on those imported was proper to promote 
the domestic manufacture of similar articles in the same 
state. A drawback of that duty was equally proper to 
encourage the printing and staining at home of those 
which were brought from abroad. When the first of those 
manufactures had attained sufficient maturity to furnish 
a full supply for the second, the utility of the drawback 

1 Act, Aug. 4, 1790, 1 Cong., second session, chap. 35, sect. 18. 

2 Tracy's Report on Drawback, Feb. 19, 1802, 1 Finance, p. 733. 



96 FINANCIAL HISTORY OF THE UNITED STATES. [1800. 

ceased. A third exception, he contended, should be 
made, when the material itself was produced in sufficient 
abundance here to furnish a cheap and plentiful supply 
to the manufacturer requiring it. Hemp either did or 
was soon expected to exemplify a commodity of this class. 

Hamilton further remarked, that, when duties on the 
materials of manufacture were not laid for the purpose 
of preventing competition with some domestic production, 
the same reasons which recommended, as a general rule, 
the exemption of those materials from duties, would 
recommend the allowance of a drawback in favor of the 
manufacturer. Accordingly, such drawbacks were famil- 
iar to countries which systematically pursued the business 
of manufactures, which furnished an argument for the ob- 
servance of a similar policy in the United States ; and the 
idea had been adopted by the laws of the Union in respect 
to salt and molasses. Hamilton believed that the same 
principle could be beneficially extended to other articles. 1 

Several years afterward, when more revenue was want- 
ed, the secretary of the treasury, Wolcott, recommended 
a tax on drawbacks. The committee of ways and means 
considered the expediency of the measure. War was 
then raging in Europe; and it was contended, on the 
one hand, that, if such a tax were laid, it would not rest 
on our commerce or merchants, but on foreign nations, 
who were the consumers of the re-exported commodities. 
While the war continued, they would certainly be obliged 
to purchase them from America alone, and would be 
under the necessity of repaying the tax, in addition to 
the price which otherwise would be demanded. 
1 Report on Manufactures. 



1800.] TAXATION OF IMPORTS. 97 

To this reasoning it was answered, that the whole 
argument rested on the supposition of our ability to 
effect two things, both of which were very uncertain: 
namely, to monopolize the business of supplying the 
countries in question with East and West India and 
China commodities, and "to compel those commodities 
to touch first at our own ports, before they were carried 
to the places where they were consumed ; " for it was 
clear, that if, by raising the price of the commodities, 
we should raise up competitors who could underbid us 
in the foreign markets, or should, by taxing them when 
they arrived at our own ports, lead our merchants to 
carry them directly from the places of their production 
to the places where they were consumed, without landing 
them in this country, — in either case the duty would be 
lost : in the first, by ruining altogether our trade, whereon 
the duty must depend ; and, in the second, by turning the 
trade away from our own ports, where alone the duty 
could be collected. A duty of two and one-half per cent, 
which was the figure proposed, would amount to a large 
sum on a valuable cargo, and was a sufficient premium 
to tempt the avoiding of American ports. The committee 
made no recommendation, but Congress tried the experi- 
ment. 1 The duty imposed was two and one-half per cent, 
in addition to half that sum previously exacted for enter- 
ing and storing such goods ; but, if they were re-exported 
in the foreign vessels which imported them, the draw- 
back previously allowed was withheld. 2 

1 Harper's Report on Additional Revenues, April 30, 1800, 1 Finance, 
p. 642. 

2 Act, May 13, 1800, 6 Cong., first session, chap. 64. 



98 FINANCIAL HISTOKY OF THE UNITED STATES. [1793. 

Another defect early appeared in the law relating to 
this subject. Goods were brought into the United States, 
and then re-exported to a foreign port adjacent to the 
dominion of this country. As the drawback was allowed 
when they were taken away, and they could be easily 
returned after re-exportation without the payment of a 
duty, the government was defrauded of the revenues to 
which it was fairly entitled. This defect was partly 
corrected by the law of 1799. 1 

Manufacturers were constantly trying to obtain more 
favorable legislation in the way of drawbacks on imported 
dutiable merchandise used in the manufacture of other 
articles which they desired to export. Cordage was one of 
the things which secured much attention from Congress. 
In 1793 it had been exported in considerable quantities, 
but later a duty of twenty dollars per ton was levied 
on foreign hemp. Of course, the levying of so heavy 
a duty on the raw material was a serious detriment to the 
American manufacturer. But it did not appear expedient 
to Congress, either to increase the duty on the imported 
article, or to discontinue the allowance of the drawback 
on the re-exportation of foreign manufactured cordage: 
Congress therefore devised another remedy ; namely, the 
payment to American manufacturers of a certain sum 
on all cordage exported, as equivalent to the duty on 
hemp. 2 The same remedy was applied to other things. 

Still the cordage manufacturers were not satisfied. 
They wanted either a discontinuance of the drawback on 

1 Act, March 2, 5 Cong., third session, chap. 22, sect. 75. 

2 Bourne's Report on Drawback on Cordage, Feb. 7, 1793, 1 Finance, 
p. 202. 



1793.] TAXATION OF IMPORTS. 99 

foreign cordage when exported, or an allowance of a draw- 
back on the exportation of home-made cordage equal to 
the duty imposed on hemp. There were two grave diffi- 
culties in the way of granting such relief. The first was 
the contravention of the general principle adopted by the 
government of allowing drawbacks on the exportation 
of imports : the other difficulty was the distinguishing of 
cordage made of American hemp from that made of the 
foreign material. These objections were subsequently 
made to similar applications of soap and candle manu- 
facturers. 

Sugar-refiners frequently applied to Congress for simi- 
lar assistance, which was desired for the same reason, 
chiefly, that was given by the cordage, soap, and other 
manufacturers. The duty collected from this source has 
always been so large as to warrant our describing the 
manner in which the government allowed drawbacks when- 
ever sugar was exported. 

At first a duty of two cents a pound was collected on 
sugar refined within the United States. A similar duty 
was allowed as a drawback, besides three cents a pound 
to cover the duties paid on importations. When this reg- 
ulation was made, the duty on crude sugar was one cent 
and a half a pound. As two pounds of crude sugar were 
needed to make one pound of refined, three cents per 
pound were allowed on exporting the refined article ; and 
to this were added the two cents per pound paid for the 
excise, the duty and the excise thus making a drawback 
of five cents a pound allowed in the beginning. By 
subsequent statutes, the duties on imported sugar were 
increased ; but there was a corresponding increase of draw- 



100 FINANCIAL HISTORY OF THE UNITED STATES. [1799. 

back. When, however, the internal taxes were repealed 
in 1802, the drawback on refined sugar, then amounting 
to seven cents a pound, ceased. 

Notwithstanding the repeal of these statutes, the refin- 
ing of sugar in the United States was " not wholly unpro- 
tected." At one time sugar-candy, or crystallized sugar, 
could be imported from Asia, " not only so cheap as to vie 
with the West-India brown, but even to be substituted, in 
many cases, for refined sugars in the markets of the United 
States." The merchants who could have bought great 
quantities of this " elegant form of sugar " were inter- 
rupted in their trade by the imposition of a duty of nine 
cents a pound, which, three years afterwards, was increased 
two cents and a half per pound more. " Thus, to protect 
the domestic refiners of sugar, the merchants who traded 
to the East Indies were prohibited from bringing sugar- 
candy to the United States, and the citizens at home from 
consuming it, but at the enormous price paid for it as a 
dainty, a medicine, or a rarity." a 

Nor was Congress unmindful of " encouraging the do- 
mestic sugar-refinery." By various Acts, a duty amount- 
ing to nine cents a pound was imposed on foreign refined 
loaf-sugar, and six cents and a half per pound on all other 
refined sugars. In 1799 Congress refused to grant a 
drawback on the exportation of imported loaf and lump 
sugars refined abroad, and forbade the importation of it 
in vessels of less burthen than one hundred and twenty 
tons, and in parcels of less than six hundred pounds. 

1 Mitchell's Report on Drawback, Dec. 20, 1803, 2 Finance, p. 74; and 
Crowninshield's Report on Drawback on Refined Sugar, Jan. 21, 1805, 2 
Finance, p. 116. 



1805.] TAXATION OF IMPORTS. 101 

These heavy duties effected an almost total prohibition 
of foreign refined sugars. 1 

The domestic refiners, nevertheless, strenuously sought 
to obtain a drawback on the exportation of their own 
product. There were two difficulties in the way, spring- 
ing from the acquisition of Louisiana. The first was, that 
a large amount of sugar was prepared and exported annu- 
ally from New Orleaus and vicinity, and it was regarded 
as unreasonable to allow a drawback on sugar which had 
never paid a duty : the other difficulty was, that a sugar- 
refinery had been established at New Orleans, where 
others were likely to be established. To accomplish the 
object which the sugar-refiners had in view, it was de- 
clared necessary to prohibit the importation of refined 
sugar into Louisiana; and, to avoid paying a drawback 
on sugar that had never paid duties, it would also be 
necessary to distinguish the sugars of Louisiana from those 
of foreign production. 

The sugar-refiners often renewed their demand, but in 
vain. Indeed, a report of the committee on commerce 
and manufactures, made during the session of 1805, shows 
that the current had set strongly against the sugar-refiners. 

Occasionally Congress discovered that the duties were 
so high as to check importations. When cocoa, for exam- 

1 A committee of Congress who reported on this subject said, " Sugar- 
candy and loaf-sugar from abroad are loaded with such heavy duties, that 
their prohibition operates as a bounty on the domestic manufacturers. The 
duties on the refined sugar consumed at home are paid by the consumer; 
and, to protect the refiners of sugar in the United States, government has 
adopted measures that have considerably lessened the revenue on that 
article, and, by removing foreign competition, enhanced the price to the 
domestic consumer." 



102 FINANCIAL HISTORY OF THE UNITED STATES. [1797. 

pie, was first taxed in 1789, the duty assessed was one 
cent per pound. It was afterward raised to two cents, 
and in 1794 the duty was doubled. The latter rate 
checked importations. The revenue received from the 
article when the duty was two cents per pound was as 
great as when the duty was doubled. Adam Smith's 
remark was again verified, that, "in the arithmetic of 
customs, two and two do not always make four." The 
increased duty, therefore, operated, say a committee who 
investigated the subject, " if not to discourage importation, 
to produce this effect by causing an export of it before 
manufactured." Another effect of the high rate of duty 
was to oppress unreasonably the manufacture of chocolate 
without benefiting in any way the public revenue. 1 

1 Swanwick's Report on Reduction of Duties on Cocoa, Feb. 8, 1797, 
1 Finance, p. 494. 



1790.] INTERNAL REVENUE. 103 



CHAPTER VI. 

INTERNAL REVENUE. 

When Congress convened the second time, every mem- 
ber clearly saw the necessity for increasing the revenue. 
From what source should the new supply be drawn? 
Hamilton urged an increase of the duties, and also a tax 
on spirits distilled at home. The latter suggestion was 
warmly debated in Congress. The Middle States and the 
East favored such a measure, but the South was strongly 
opposed. " Grog " was declared to be " a necessary arti- 
cle of drink in the Southern States ; " and consequently 
" this mode of taxation was odious, unequal, unpopular, 
and oppressive." Some members regarded the measure 
as an invasion of the rights of the States. Said Jackson 
of Georgia, "I plainly perceive that the time will come 
when a shirt shall not be washed without an excise." 1 
Another objection was the probable unequal operation 
of the law in the different sections of the country. 
This was the chief objection raised by the people of 
Pennsylvania who lived west of the Alleghanies. Never- 
theless, the bill passed the House by a vote of thirty-nine 
to nineteen, requiring the payment of a duty of eleven 
cents per gallon on all spirits distilled from foreign mate- 
rials, and nine cents on those manufactured from domes- 

1 Annals of Congress, vol. ii. pp. 1842, 1844. 



104 FINANCIAL HISTORY OF THE UNITED STATES. [1791. 

tic materials. The duties were higher on spirits distilled 
from foreign materials, because they possessed greater 
value. 

For the purpose of collecting these revenues, the coun- 
try was divided into districts, and a supervisor was 
appointed for each district, with power to appoint those 
who should have the charge and survey of the distilleries 
within it. The duties were to be paid, or a bond given 
for their payment, previous to the removal of spirits 
from the distilleries. If payment were made before such 
removal, there was an abatement of two cents for every 
ten gallons. The regulations were somewhat different 
on those stills not located in "a city, town, or village." 
There was " a yearly duty of sixty cents for every gallon, 
English wine measure, of the capacity or contents of 
each and every such still, including the head thereof." 
If, however, the distiller were aggrieved by paying such 
rates, he was permitted to keep an account of the exact 
quantity distilled, and of the quantity sold and on bond ; 
and the duties were to be estimated on such still, "ac- 
cording to the quantity so stated to have been actually 
made therefrom, at the rate of nine cents per gallon." 

The law was passed March, 1791, 1 and a year after- 
ward Hamilton made a report thereon, in obedience to an 
order of the House. 2 He declared that several objections 
had been raised to it, that it contravened the principles 
of liberty, was injurious to morals, that heavy and oppres- 
sive penalties had been prescribed, that industry was 
injuriously affected by it, and, finally, that the law inter- 
fered with the business of distilling. 

1 Marcli 3, 1 Cong., third session, chap. 15. 2 Works, vol. iii. p. 297. 






1792.] INTERNAL REVENUE. 105 

All these objections were fully answered. " There can 
surely be nothing," says Hamilton, " in the nature of an 
internal duty on a consumable commodity, more incom- 
patible with liberty, than in that of an external duty on 
a like commodity. A doctrine that asserts that all duties 
of the former kind are inconsistent with the genius of a 
free government is too evident, and too little reconcila- 
ble with the necessities of society, to be true. It would 
tend to deprive the government of what is, in most coun- 
tries, a principal source of revenue, and, by narrowing 
the distribution of taxes, would serve to oppress par- 
ticular kinds of industry. It would throw, in the first 
instance, an undue proportion of the public burden on 
the merchant and the landholder." 

Excise laws we're generally regarded as unfriendly to 
liberty, because summary and discretionary jurisdiction 
was vested in the officers charged with executing them, 
contrary to the course of the common law. But this ob- 
jection could not be made to the present law. No indis- 
criminate power to search and inspect had been conferred. 
No house or building could be searched or inspected 
which had not been previously entered, and marked by 
the possessor as a place used for distilling or keeping 
spirits. The Act was supposed to injure morals by re- 
quiring oaths to be taken, — an effect which Hamilton 
regretted. But then, as he remarked, they were gen- 
erally used in courts of justice. It was remarkable, he 
added, that both kinds of security to the revenue, pro- 
vided by the Act, — the oaths of parties, and the inspec- 
tion of offices, — found opponents. If they Were both 
abandoned, it was not easy to imagine what security 



106 FINANCIAL HISTORY OF THE UNITED STATES. [1792. 

there could be for any species of revenue collected from 
articles of consumption. 

Some distillers suggested that the revenue might be 
more satisfactorily collected by having a fixed rate of 
duty, " adjusted according to a ratio compounded of the 
capacity of each still, and the number and capacities of 
the cisterns employed with it ; " but this method found 
many objectors, who contended that it would operate 
unequally, arising from unequal supplies of the materials 
at different times and places, and also from the different 
methods of distillation practised, and from the varying 
degrees of activity in the business resulting from the capi- 
tal employed. Hamilton declared that the result of his 
examination was, that every mode suggested in cases in 
which the business was conducted upon an extensive 
scale would be attended with many inequalities, and 
upon the whole would be less satisfactory than the plan 
which had been adopted. 

Thus did Hamilton meet one objection after another, 
until he had gone over the whole field of dispute. His 
answer to one more objection may be given, before closing 
our review of his report. It was claimed that the duty 
ought to have been laid in the beginning on the con- 
sumer, and not on the distiller ; because under the mode 
adopted a larger capital was necessary to carry on the 
business, and in the country, where capital was not 
large, distillers were placed at a disadvantage. This 
inconvenience, the secretary replied, was obviated by the 
credits given to them in paying their duties. On the 
other hand, the collection of the duty from the distiller 
had several advantages. It contributed to equality by 



1792.] INTERNAL REVENUE. 107 

charging the article in the first stage of its progress, 
which diffused the duty among all classes alike. It bet- 
ter secured the collection of the revenue by confining 
the responsibility to a smaller number of persons, and 
simplifying the process. It avoided the necessity of so 
great a number of officers as would be required in a more 
diffuse system of collection, operating immediately on 
purchasers and consumers. Besides, Hamilton contend- 
ed, such a plan would transfer whatever inconveniences 
might be incident to the collection from a smaller to a 
greater number of persons. 

Although the excise finally imposed was two cents less 
per gallon than was collected by the State of Pennsylva- 
nia just before adopting the constitution, the inhabitants 
of the western part of the State refused to obey the law. 
The officers appointed to execute it were so seriously 
intimidated that they abandoned their posts. An address 
written by Hamilton, explaining the law, and seeking 
to reconcile the discontented, was circulated. No good 
effect followed. A proclamation issued by the President 
was the next step taken by the government. He ex- 
horted all persons to desist from any proceedings tend- 
ing to obstruct the execution of the laws, and invoked 
the aid of the magistrates to bring offenders to justice. 
But the proclamation was disregarded as generally as the 
address issued by the secretary had been. Many of the 
magistrates, instead of co-operating with the officers of 
the Federal Government to maintain the laws, encour- 
aged resistance to them. Meetings were held at Pitts- 
burgh and elsewhere , and on these occasions resolutions 
were adopted, tending to increase the discontent, and 



108 FINANCIAL HISTORY OF THE UNITED STATES. [1796. 

encourage resistance to the execution of the law. Some 
of these resolutions went so far as to declare all excise 
collectors infamous; and destruction to their life and 
property was threatened. Among the persons who encour- 
aged opposition to the government was Gallatin, subse- 
quently secretary of the treasury. The spirit of rebellion 
rapidly spread and intensified until the summer of 1799, 
when an effective measure was put forth to suppress it. 
A strong military force of fifteen thousand men was 
raised, and placed under the command of Hamilton, who 
marched through the insurrectionary district, and speedily 
quelled the disaffection with only very slight loss of life. 

During the next session the law was modified in several 
ways. A few members favored its repeal because it 
abridged the liberties of the people; but the need of 
money was so great, and the expediency of taxing spirits 
distilled at home, to some extent, was so generally acknowl- 
edged, that Congress wisely persisted in continuing a tax 
on this article. Mutterings and grumblings were indeed 
heard after amending the law; but the government en- 
forced it, and collected a large revenue therefrom. The 
law was frequently modified ; and within five years from 
its enactment, the duty had been changed to ten cents per 
gallon on spirits distilled from molasses, and seven cents 
on spirits distilled from grain and fruit. These duties 
were laid on the lowest proof, and rose as high as eighteen 
and twenty-five cents per gallon on the highest proof. 
Country distillers who used domestic materials only had 
the option of paying a similar duty, or a yearly duty of 
fifty-four cents, or a monthly duty of ten cents, for every 
gallon of the capacity of their stills. 



1796.] INTERNAL REVENUE. 109 

The duty on spirits distilled from domestic materials 
was collected from a very large number of manufacturers, 
scattered over a vast and thinly-settled country; while 
the duty on spirits distilled from molasses was more 
easily collected, because the manufacture of it was con- 
fined to a few individuals who resided at the seaports. 
In consequence of the difficulty and expense attending 
the collection of the former tax, Gallatin, in his " Sketch 
of the Finances," which appeared near the close of 1796, 
suggested the expediency of laying a moderate monthly 
or yearly duty on the stills, proportionate to their capa- 
city ; repealing the option, at that time given, to pay in 
proportion to the quantity distilled. 

Gallatin believed that several beneficial results would 
follow, if the law were thus amended. The difficulty of 
discovering the quantity of spirits manufactured caused 
evasions of the duty equally injurious to the revenue, 
to the fair trader, and to the morals of the people. A 
premium, indeed, seemed to be offered by the present 
law to those who should violate their oaths, — a tempta- 
tion, perhaps, too strong to be always resisted by all the 
individuals to whom it was presented. To prevent such 
evasions, it was necessary to create a number of officers, 
proportionate to the extent of territory and to the num- 
ber of manufacturers, and to invest them with extensive 
powers, and to subject the manufacturer to a vexatious 
but necessary inquisition. But it was very easy to know 
whether a man distilled or not, however difficult it might 
be to find out the quantity of spirits which he distilled. 
The number of officers needed, therefore, would be com- 
paratively few. Every distiller felt interested in having 



110 FINANCIAL HISTORY OF THE UNITED STATES. [1796. 

all pay the duty who were properly subject to it. By the 
present plan, he could by no means check the frauds 
committed by others: by the plan proposed, he would 
contribute to secure the public against them. In every 
point of view, the expense of collection would be dimin- 
ished ; evasions of the duty would become almost impos- 
sible ; and the distiller, after having paid for his license, 
would be liberated from the visits of the officers, and 
from the duty, however inconvenient, of keeping correct 
books and accounts. 

The only objection to the mode of thus paying a duty 
on stills was the possible unequal operation of the 
measure. It would fall more heavily on small stills, 
which were generally owned by men having less capital, 
and located in less advantageous situations. This diffi- 
culty, Gallatin suggested, might be remedied by making 
the duty somewhat less, in proportion to their capacity, 
on stills under a certain dimension. It was further re- 
marked, that, however improper and dangerous it might 
be for the government to pass laws with the view of giv- 
ing a certain direction to industry and capital, it could 
not be doubted that the effects of a provision which 
tended gradually, and without any injury to the property 
then invested in that business, to diminish the immense 
number of small distilleries, would prove favorable to the 
general wealth and to the morals of the people. At the 
next session of Congress the law was amended in accord- 
ance with Gallatin's suggestion, and a duty was laid on 
the capacity of the still. This mode of collecting the 
duty continued until the repeal of all internal duties in 
1802. 



1796.] INTERNAL REVENUE. Ill 

As additional taxes were necessary, the retailers of 
wines and foreign spirits were required to pay five dollars 
a year for a license to continue their business. This 
regulation applied to all persons except tavern-keepers 
and apothecaries who sold wines in less quantities than 
thirty gallons, or two-thirds that quantity of spirits. 

In regard to this tax, Gallatin acutely remarks, " The 
object of a duty upon the retailers of any article of con- 
sumption which is already taxed is to increase that tax, 
but, by dividing it, to diminish the temptation of smug- 
gling, and the evasions of the duty." The duties upon 
the importation of wines and spirits at the time he wrote 
his "Sketch" amounted annually to nearly 12,000,000. 
For licenses $60,000 were obtained, — " only an additional 
three per cent on the duty ; not one per cent on the 
article." To Gallatin it did not seem that so trifling an 
addition, less than one per cent per gallon on articles 
which paid at least twenty-five per cent duty, could 
possibly encourage smuggling. He declared that the 
duty on licenses fell very unequally, as all retailers paid 
the same, whether they sold much or little. It operated 
partly as a tax on consumption, and partly as a premium 
to large retailers. He thought, therefore, that the sum 
would be more justly and conveniently raised on the 
importation of the articles. But an annual license-fee 
so small as five dollars did not cause much hardship or 
inequality. To the retailers selling only a small quan- 
tity the duty could not have seemed heavy; and, of 
course, the more prosperous ones could not have felt any 
sensible diminution of their income. 

Notwithstanding the heavy duties imposed, the con- 



112 FINANCIAL HISTOKY OF THE UNITED STATES. [1796. 

sumption of domestic and imported spirits did not de- 
crease. Had such a result followed, Gallatin declared 
the duty would have probably been lowered; for "the 
object of the government in laying these and other duties 
on spirits was not to check the use, but to raise money." 

In 1794 a tax was laid on carriages. An exemption 
was made of those employed chiefly in husbandry and 
in transporting goods. The tax was not uniform, but 
varied from one to ten dollars on each carriage. Con- 
gress very keenly debated whether the tax was not a 
direct one, within the meaning of the constitution, which 
declared that no capitation or other direct tax should 
be laid, unless in proportion to the census or enumer- 
ation for taking which that instrument had provided. 
Many refused to pay on that account ; and consequently 
the revenue derived from that source, during the first 
year of the operation of the law, was much smaller than 
had been expected. Finally, the Supreme- Court was 
asked to decide the question. The Act was adjudged 
constitutional. 

Gallatin, when treating of the subject, acutely remarks, 
" A less vague expression than that of direct might have 
been used in the constitution : as it now stands, it is diffi- 
cult to affix to it any precise and determinate meaning. 
The word in itself does not express a positive or absolute 
qualification, but only the relation of a subject to another. 
The constitution mentions only one of the subjects, but 
does not -say in relation to what other subject taxes are to 
be considered as direct. The direct tax is that which falls 
directly ; but upon what ? On the person who pays it ? 
On the article taxed ? On that general fund intended to 



1797.] INTERNAL REVENUE. 113 

be taxed ? . . . The most generally received opinion, how- 
ever, is, that by direct taxes in the constitution those are 
meant which are raised on the capital or revenue of the 
people ; by indirect, such as are raised on their expense." 

The decision of the court settled the question, and those 
having carriages covered by the law were obliged to pay. 
But the officers who attempted to execute it soon en- 
countered a great difficulty in classifying the carriages in a 
satisfactory manner : consequently, the next year the law 
was amended, and the various kinds of carriages were 
described and classified more perfectly. As they were 
regarded a luxury, Congress acted wisely in taxing them 
in preference to other things beside spirits. 

A duty was laid on sales at auction. Auctioneers were 
prohibited from selling without a license, and they were 
required to keep an account of their sales. This duty fell 
almost wholly on imported commodities, and Gallatin was 
strongly opposed to it. While the duty on importations 
was borne equally by the consumer, the auction duty was 
paid by the importer or some other dealer. Its productive- 
ness was determined by the honesty of the auctioneers, 
whose temptation to render false accounts was very great. 

As the revenues still proved insufficient, a duty was 
laid on vellum, parchment, and paper used for a great 
variety of legal writings described in the Act. This Act 
was exceedingly unpopular. It was associated with a 
former Act, the odiousness of which was vividly remem- 
bered. Its execution was at first delayed ; and several 
modifications occurred during the short period of its ex- 
istence. " Curiously enough," says Gibbs, 1 the Act "fur- 

i Vol. i. p. 555. 



114 FINANCIAL HISTORY OF THE UNITED STATES. [1795. 

nished a cause of jealousy to the President, who for some 
reason supposed it to exalt the powers of the secretary 
of the treasury at his expense." 

Taxes were levied on two other things, — sugar refined 
within the United States, and snuff. On the former arti- 
cle there was a duty of two cents a pound. In the early 
days of its production, the manufacturers, aided by the 
high duty levied on the raw material, supplied the entire 
consumption of the country. The experiment of taxing 
snuff was not successful. At first a tax of eight cents 
per pound was levied. Under this law only a very small 
revenue was obtained. The tax was then laid on the 
mills employed in making it, and a very much larger in- 
come was received. A drawback of six cents per pound 
was allowed on the quantity exported. The money with- 
drawn from the treasury to pay this allowance was greater 
than the whole tax received from the same source. In 
truth, snuff was manufactured for the purpose of getting 
the drawback, which operated as a bounty. The difficulty 
of rendering the duty equal, from the different situation 
and capacity of the mills, and from the necessity of allow- 
ing a drawback on the exported product, although it was 
impossible to allow one proportionate to the duty laid on 
the machinery employed in manufacturing the article, and 
the evasions practised by hand-mills, — these things moved 
Congress to suspend the law for one year, but it was never 
revived. 

Yet from all these sources the income obtained by the 
government was inadequate. It was not so large as the 
secretary of the treasury had expected it would be. This 
was owing to various causes. The deficiency in duties on 



1795.] INTERNAL REVENUE. 115 

distilled spirits and stills was caused by the lack of foreign 
materials which were used before the war, and by the 
diversion, to some extent, of the capital formerly thus em- 
ployed, into other industries. Though they were subjected 
to an internal duty, sufficient time had not elapsed to 
perfect the machinery for collecting it. But a more 
serious cause of the unexpected deficiency was the lack 
of energy in collecting the revenues. The establishment 
of an effective and productive internal revenue, Wolcott 
declared, was truly desirable " as connected with a speedy 
reduction of the public debt ; " and no period could be 
more fit for accomplishing this object than when the 
internal resources of the country were flourishing in a 
manner hitherto unprecedented. 1 

Both political parties saw the need of increasing the 
revenue, and were willing to take steps in that direction ; 
but there was a wide difference between them about the 
mode of raising it. The Federal party proposed to 
extend the present system; but the other party, which 
controlled the House, favored direct taxation. From an 
opinion, says Marshall, 2 "that direct taxes were recom- 

1 Gibbs's Adm., vol. i. p. 283. 

2 Life of Marshall, p. 566. " Those who can carry their recollection 
back to the period immediately preceding Mr. Jefferson's administration, 
or who are familiar with the history of parties in our country, know that it 
was a favorite doctrine with the Republican party that direct taxes were 
preferable to a tax on imports, for two reasons. One was, that they were 
more economical, inasmuch as the importer, being obliged to advance the 
tax to the government, charged a profit on such advance, as well as on the 
price of the goods, by which the price to the consumer was proportionally 
enhanced ; and thus more was taken from the pockets of the people than 
was paid into the treasury. The other reason was purely a political one : 
it was, that, when taxes were direct, the people would necessarily know 



116 FINANCIAL HISTORY OF THE UNITED STATES. [1793. 

mended by intrinsic advantages, or that the people would 
become more attentive to the charges against the admin- 
istration, should their money be drawn from them by 
nimble means, those who wished power to change hands 
had generally manifested a disposition to oblige those who 
exercised it to resort to a system of revenue by which a 
great degree of sensibility will always be excited." The 
Committee of Ways and Means, it is true, proposed a 
slight increase of indirect taxes in some directions : but 
they expended their energies chiefly in directing the secre- 
tary of the treasury " to prepare, and report to the House, 
a plan for raising two million dollars by apportionment 
among the several States, agreeably to the rule prescribed 
by the Constitution ; adapting the same to such objects of 
direct taxation, and such modes of collection, as might 
appear by the laws and practice of the States respectively 
to be most eligible in each." 

The secretary of the treasury favored direct taxation, 
not, indeed, as a temporary or sole resource, but as a part 
of a permanent system which should include the taxation 
of imports, as well as home productions. Such a system 
he regarded as more stable than one by which the reve- 
nues were derived wholly from imports, or by indirect 
taxation. Several years before, a plain but clear-brained 
friend had written to him : " External taxation, unpro- 
tected by a navy, must always be in jeopardy. Nor is it 

what was the extent of their burdens, and, when they were increased, 
whereby they would more closely look into the expenditures of the gov- 
ernment, and thus check its tendencies to waste and extravagance, which, 
when taxes are indirect, they may indulge with impunity." — Hunt's Mag., 
vol. iv. p. 507, Essay by George W. Tucker. For Gallatin's opinions, see 
Section I. of his Sketch of the Finances. 



1795.] INTERNAL REVENUE. 117 

safe to leave the Union without any arrangements for 
direct taxation, as it will take years to devise the plan and 
put it into operation, and public credit will sink when 
most wanted. The system of finance certainly ought to 
be a complete whole, and the laws of revenue to embrace 
the whole circle of the great revenue objects, were it only 
to have such revenue laws in existence for future use." 
Wolcott's father, at the same time, wrote in a similar 
strain : " I perceive an idea has been given out, that all 
national pecuniary provisions could be made which are 
necessary, even including the State debts, without a direct 
taxation. I think, with all my ignorance of the subject, 
that it would be very strange if it could be effected 
without a land-tax : but, if it can, I hope it will never be 
attempted ; for, unless there shall be a direct taxation 
which shall affect every man of property, the people in 
general in this country will not have the least apprehen- 
sion of the existence of a national government, and con- 
sequently have no regard for it. A direct taxation, as 
odd as it may seem, is essentially necessary to induce a 
people to love their government." Six years afterward 
Chauncey Goodrich wrote to the senior Wolcott, "It is 
idle to imagine that the public debt can be discharged by 
imposts, and a paltry tax on stills, snuff, carriages, etc. 
If we are sincere in the business, — or, indeed, in having a 
government, — we must be willing that the United States 
shall, by a certain mode of collection, come upon the 
body of property." Very many at that day held similar 
opinions concerning the expediency of imposing a direct 
tax. 

As the resolution requiring the secretary to prepare a 



118 FINANCIAL HISTORY OF THE UNITED STATES. [1796. 

plan did not specify the amount of the proposed tax, 
Woleott assumed a sum that should be sufficient, with the 
revenue accruing from other sources, to pay the indebted- 
ness of the government as it matured, and all other ex- 
penses connected with its maintenance. To arrive at a 
correct estimate of the amount required for this purpose, 
a concise statement of the finances was presented. The 
amount required yearly, until 1800, was 17,429,398.99. 
Of this sum, 12,700,000 were allowed for the probable 
expenditure of the government, which, however, was 
likely to swell by the gradual increase of the nation, and 
by future contingencies. The revenues already estab- 
lished amounted to $6,200,600 : therefore a further sum of 
$1,228,794.50 was required. Allowing fifteen per cent 
for the expense of collection and contingencies, he pro- 
posed a direct tax of $1,484,000. Woleott then described 
several modes of imposing the tax. The first mode was, 
" that an Act of Congress should be passed, declaring the 
quotas of the different States, assigning a time for payment 
into the treasury, and proscribing, in cases of delinquency, 
that the said quota should be assessed and collected by 
the authority of the United States, upon the same objects 
of taxation, and pursuant to the same rules, by which the 
last taxes were assessed and collected by the respective 
States ; " the second, " that the Act of Congress should 
direct that the proposed tax should be assessed and col- 
lected, under authority of the United States, upon the 
same objects of taxation, and pursuant to the rules of 
collection, by which taxes are collected by the States re- 
spectively;" and the third, "that the Act of Congress 
should define certain objects of taxation, and principles of 



1797.1 INTERNAL REVENUE. 119 

assessment, according to which the proposed tax should 
be assessed in all the States, to be collected according to 
uniform regulations." 

Wolcott recommended the third plan, singling out lands 
and houses for taxation. The former he proposed to tax 
ad valorem ; while houses, excluding in value those gener- 
ally occupied by farmers and laborers, should be distrib- 
uted in each of the States into three classes, according to 
their value, and taxed uniformly in each class at specific 
rates. Houses in general, and of such description as 
should be determined by law, he proposed to tax at one 
uniform rate. 1 

Early in January 2 the Committee of Ways and Means 
reported in favor of a direct tax on land and slaves. 
Congress discussed the subject ; but, toward the close of 
the session, Wolcott wrote to his father, " The conduct of 
Congress is a political phenomenon over which I would, if 
possible, draw a veil ; but it cannot be concealed that 
there has been no system, no concert, no pride, no indus- 
try. . . . Nothing will probably be done this session on 
the subject of direct taxes. All men know that a tax 
was indispensable. There has, however, been so much 
said formerly against direct taxes, that but few have the 
courage to speak out. I have, however, done my duty. I 
know the tax to be necessary, the plan I have proposed a 
good one, and, if adopted, would not only establish the 

1 Wolcott's report was very elaborate: it described the system of direct 
taxation in each State, the principles which should be observed in creating 
a national system, the effect of the system on the objects to which it should 
be applied, beside other important features. Made to the House, Dec. 14, 
1796, 1 Finance, p. 414. 

2 1797. 



120 FINANCIAL HISTORY OF THE UNITED STATES. [1798. 

government and public credit more than any one measure, 
but would lead the States to improve their own systems. 
Moreover, it would not be generally unpopular. The peo- 
ple have more sense, patriotism, and justice, than to com- 
plain. They wish to have the debt extinguished, and they 
are desirous of seeing the national establishments equal 
to the maintenance of the rights and honor - of the coun- 
try. In short, I know that the measure will be adopted, 
and with the general consent of the people." Wolcott 
was right in his gloomy surmising, for Congress adjourned 
without adopting the much-needed measure. Hamilton 
regarded a house-tax and an extension of internal taxes 
more expedient than a direct tax. In a letter he wrote to 
Wolcott was enclosed a rough sketch of a building-tax. 
" The more I reflect," he says, " the more I become con- 
vinced that some such plan ought to be adopted, and the 
idea of a tax on lands ought to be deferred." 

At the next session the Committee of Ways and Means 
reiterated the necessity of raising $2,000,000 by a direct 
tax on lands, houses, and slaves. Though exceeding the 
amount required at the moment, it was small enough, con- 
sidering the future needs of the government. 

The tax was apportioned among the several States on 
the enumeration of the census of August, 1790, when the 
whole representative number, including three-fifths of the 
slaves, was 3,650,250. It was proposed that the tax be 
assessed as follows : — 

1st, On dwelling-houses, to be distributed into nine 
classes, and taxed uniformly in each class. 

2d, On slaves, to be taxed uniformly. 

3d, On lands, to be taxed at such rate, ad valorem, in 



1801.] INTERNAL REVENUE. 121 

each State, as, with the sums assessed on houses and 
slaves, would produce the entire amount of the sums ap- 
portioned among the respective States. 

According to the estimates, the tax on houses, as pro- 
posed, would produce $1,315,000 

Taxes on slaves 228,000 

Leaving to be raised, by an assessment, ad valorem, on 

lands, the sum of 457,000 

$2,000,000 

Bills were subsequently reported, providing for the val- 
uation of lands and dwelling-houses, the enumeration of 
slaves, and for the levy and collection of the direct tax. 
They did not pass, however, until July. During the sum- 
mer the preliminary machinery for the assessment and 
collection of the tax was prepared. At the next session 
several amendments to the law were suggested by Wol- 
cott, which were adopted. Among other alterations, the 
President was authorized to increase, whenever necessary, 
the salaries of the officers, the smallness of which had 
prevented the government from getting suitable persons 
to fill them. 

Early in the session of 1801 an attempt was made to 
repeal the law, notwithstanding the opposition of the 
Committee of Ways and Means. One of the leading pur- 
poses at the time of enacting it was to organize a system 
for laying direct taxes in case the government at any 
time should be obliged to resort to them. To relinquish 
the design after incurring so much expense would have 
proved the fickleness of Congress. Though it was hoped 
that no more direct taxes would be needed, yet it was 



122 FINANCIAL HISTOEY OF THE UNITED STATES. [1795. 

impossible to decide the question definitely. But the 
attempt to repeal the law failed, and the valuations were 
finally completed. Of the tax of $2,000,000, imposed by 
the law of 1798, the sum of $734,223.97 was collected 
during the year 1800, and the remainder was received 
subsequently. 

The expense and number of officers employed in col- 
lecting the internal revenue formed a topic for unfavor- 
able criticism by the party opposed to the administration. 
Gallatin, in his " Sketch of the Finances," evinced his 
usual acuteness in dealing with the subject. A few months 
before publishing his work, the commissioner of internal 
revenue, Tench Coxe, had made a report thereon, in 
obedience to a resolution of the House. Sixteen super- 
visors, twenty-two inspectors, two hundred and thirty- 
six collectors (fourteen of whom were also employed in 
collecting impost and tonnage duties), and sixty-three 
auxiliary officers, composed the entire force engaged in 
collecting the internal revenues of the government. 

The expense of collecting the duty on spirits distilled 
from domestic materials was much larger than on spirits 
distilled from molasses. The expense, so Gallatin said, 
was thirty-four per cent in the former case, and fourteen 
and a half per cent in the latter. He therefore maintained 
that it required no argument to show that a tax, the 
collection of which cost more than thirty per cent of the 
amount received, was a bad one ; and no doubt could re- 
main of the propriety of repealing it, and substituting any 
other in its stead, if it were not connected with the tax 
upon imported spirits. The amount collected from these 
sources was nearly one and a half million dollars; and 



1793.] INTERNAL REVENUE. 123 

there could be no doubt that it would be in some degree 
affected by total exoneration of the tax now paid on the 
domestic manufacture. He therefore thought it was more 
advisable, under the present circumstances, to modify the 
most exceptionable part of the law, — that which related 
to spirits distilled from domestic materials. The modi- 
fication proposed by him was a duty on the stills, which 
was subsequently laid. 

The expense of collecting duties on sugar, and other 
articles included within the scope of internal taxation, 
was not so great, in proportion, as on spirits distilled from 
domestic materials. The duties on licenses to retailers 
of wines and spirits, and sales at auction, were only two 
and one-half per cent: those on sugar refined and on 
pleasure-carriages were twice as great. The tax on snuff 
was collected with so much difficulty, that, after a short 
attempt, its collection was suspended. 1 The expenses on 
all these things, so Gallatin reckoned, were about eigh- 
teen per cent; but the reader should consider that the 
arrangements for collecting it in the beginning were im- 
perfect ; and during the next five years, while the revenues 
were nearly doubled in productiveness, the expense of 
collection was no greater, — in truth, was somewhat les- 
sened. 

Concerning the number of officers employed, the com- 
missioner remarked, that, in comparison "with facts in 
the scene most adjacent to the seat of government, these 
were less numerous than the corresponding officers of the 
States. The collectors alone," he continues, " of the 

1 Short History of the Nature and Consequences of Excise Laws, Phil., 
1795, p. 56. 



124 FINANCIAL HISTORY OF THE UNITED STATES. [1802. 

revenues of the State of Pennsylvania, all of which 
are of course internal, are believed to be very many 
more in number — as well, in fact, as in proportion 
to the respective aggregates of the taxes — than all the 
officers of every description employed in that district 
to superintend and collect the six internal duties of the 
United States." 

There was, indeed, one conclusive argument in favor 
of laying and collecting these revenues. The excise was 
part of the system by which Hamilton sought to re- 
enforce the import duties, and to prepare the way for 
collecting a revenue in time of war, when the usual 
sources of taxation should become dry. It was desirable 
to develop the system as rapidly as possible, with the 
least injury to the interests of the people, to test their 
tax-paying power. The taxes had been laid first on im- 
ports, followed by internal taxation ; and lastly, a direct 
tax was imposed. Some people squirmed in bearing the 
burden ; but what would they have thought had they 
lived in " the land of Gex " during the days of Voltaire, 
when the inhabitants paid a land-tax, poll-tax, twentieth, 
seigneurie, impost duties, tobacco-tax, salt-tax, special salt- 
tax, cotton-tax, and road-tax, — the latter in labor ? 

With the advent of Jefferson's administration, all in- 
ternal duties were repealed. Gallatin, who was the ablest 
financier in his party, did not recommend their repeal; 
but the Committee of Ways and Means did, of which Ran- 
dolph was chairman. 1 Their mode of treating the matter 
is proof of the absence of that careful precision which 
marked the official conduct of Gallatin, Wolcott, and 

1 Report on Internal Duties, March 8, 1802, 1 Finance, p. 734. 



1803.] INTERNAL REVENUE. 125 

Hamilton. Randolph estimated the duties accruing from 
this source for the year 1800 u at a sum not exceeding 
8710,000," and that they were " chargeable with the ex- 
pense of collection, equal to $120,000." The truth was, 
the sum collected for that year was 1772,322.59, exclud- 
ing the income from stamps; and the expense of collection, 
$88,161.06. 

The inference which Randolph desired to have drawn 
from the following statement in his report is very appar- 
ent : " To produce, therefore, into the treasury, somewhat 
less than $600,000, an expense must be incurred more 
than equal to a fifth of that sum." The fact was, 
that less than one-ninth was spent in collecting the 
internal revenue. The chief reasons urged for abolish- 
ing this portion of the public revenue are thus stated 
in the report : — 

First, " In the vexation and oppression of many of them, 
some of which are peculiarly obnoxious to our citizens " 
(the tax which the committee doubtless had most directly 
in mind was that for distilling spirits from domestic mate- 
rials, — a source whence $372,561.60 was derived during 
1800, and collected from twenty-two thousand stills) ; sec- 
ondly, that such a tax was "in the nature of excise, 
which is hostile to the genius of a free people ; " and, 
thirdly, because so long as the duties remained, "their 
tendency was to multiply offices, and increase the pat- 
ronage of the executive. This effect alone would for- 
bid the retention of the internal taxes, and a reduction, 
to an equal amount, of the impost on articles of the first 
necessity : since, by that measure, not one of the host of 
officers employed in their collection would be reduced." 



126 FINANCIAL HISTORY OF THE UNITED STATES. [1802. 

The truth appears to be, that the repeal of these taxes 
was a party necessity. The Republicans had premised 
to repeal them ; and the pressure to do so was too great 
to be resisted, although Gallatin saw how dangerous was 
the step. During the war of 1812 his party re-imposed 
all of them, including even the direct taxes. 



1790.] THE FIRST UNITED-STATES BANK. 127 



CHAPTER VII. 

THE FIRST UNITED-STATES BANK. 

A national bank was included in Hamilton's scheme 
for restoring the finances of the country. Long before, 
in a letter to Morris, 1 he had not only given weighty 
reasons for founding a bank, but had accompanied them 
with a plan of the institution itself. The necessity for 
its existence cannot be measured by the present situation 
of the government. At that time there were only three 
banks in the country, whose capital was about two mil- 
lion dollars. Their bills were not a legal tender, and 
only a meagre supply of gold and silver existed in the 
country. Indeed, including the circulation of the banks, 
money was so scarce, that the only way of effecting not a 
few exchanges was by the primitive method of barter. 
More money, therefore, was greatly needed ; and the gov- 
ernment daily suffered for want of it. Confined to the 
use of gold and silver, and without a national bank, the 
government incurred considerable expense and difficulty 
in transferring money from place to place. 2 A national 
bank was imperatively required, that should fulfil both 
purposes, as well as many others, among which may be 

1 Hamilton's Works, vol. i. p. 116. 

2 Gallatin's Consideration on the Currency and Banking System, Writ- 
ings, vol. iii. p. 328. 



128 FINANCIAL HISTORY OF THE UNITED STATES. [1791. 

mentioned the temporary loaning of funds to the govern- 
ment. 

A bill for establishing the bank was introduced, where- 
upon a very lengthy debate ensued. 1 The discussion 
raged chiefly around the points of its constitutionality 
and expediency. The bill finally passed, and was signed 
by the President, after getting a written opinion from 
each of his cabinet officers concerning its constitution- 
ality. The capital of the bank was fixed at ten million 
dollars, for one-fifth of which the government could sub- 
scribe. Its existence was limited to twenty years, and it 
was forbidden to charge more than six per cent interest. 
The subscriptions of individuals were payable, one-fourth 
in gold and silver, and three-fourths in the six-per-cent 
stocks of the government then bearing interest, or in 
three-per-cents at one-half of their nominal value. The 
subscription of the government was to be paid from bor- 
rowed money, which was immediately to be reloaned, and 
finally reimbursed in ten annual instalments, with in- 
terest. No other loans exceeding 1100,000 were to be 
made to the United States without authority of law. 2 
The bank was authorized to establish offices of discount 
and deposit in the several States, and its notes were to be 
received in payment of dues to the government. It was 
authorized to sell the government stock received for sub- 
scriptions, but not to become a purchaser. 3 Of the capi- 
tal, $5,700,000 were reserved for the chief bank, which 

1 A very full account of the debate is contained in Clarke and Hall's Leg. 
and Doc. History of the Bank of the United States. 

2 See Act, March 3, 1795, 3 Cong., second session, chap. 45, sect. 19. 

3 Act, Feb. 25, 1791, 1 Cong., third session, chap. 10. 



1791.] THE FIRST UNITED- STATES BANK. 129 

was to be established at Philadelphia, while the balance, 
$4,300,000, was to be divided among eight branches, 
that were to be established in the principal cities of the 
Union. The entire capital was immediately subscribed, 
and application was made for four thousand additional 
shares within two hours after the books for subscriptions 
were opened. Oliver Wolcott was offered the presidency, 
but declined the offer ; and Thomas Willing of Philadel- 
phia was elected. 1 

Not only would the operation have been useless, but also 
disadvantageous, to the government at that time to pay 
for its stock bj drawing money from Europe, and then 
immediately to remit it as a loan from the bank. In 
doing this, there would have been a loss on exchange 
in consequence of overstocking the market with bills, 
and a loss in interest by the delays incident to the opera- 
tion, beside necessarily suspending the useful employment 
of the money. To the bank alone could any benefit have 
accrued in proportion to the delay in applying the fund 
to its primitive destination. How, then, was the end to 
be accomplished, of paying the subscription-money in 
order to vest the government with the title to the stock, 
of getting the means to make payment from the foreign 
fund (which, of course, must first be placed in the treas- 
ury before it could be used), and replacing the same? 
for none of these steps could be omitted without violat- 
ing the law. The following plan was devised and exe- 
cuted. The treasurer of the United States drew bills on 
the American commissioners in Amsterdam for the sum 
required to pay the bank, which were purchased by it. 

i Gibbs's Adm., vol. i. p. 68. 



130 FINANCIAL HISTORY OF THE UNITED STATES. [1793. 

By issuing warrants in favor of the treasurer on the 
bank, the amount was placed in the treasury. Other 
warrants were subsequently issued on the treasury in 
favor of the bank for the amount of the subscription- 
money, which was receipted by it as paid. By this opera- 
tion the government paid for its stock. Immediately the 
bank loaned $2,000,000 to the government in fulfilment 
of a stipulation in the act of incorporation, and paid it 
by redelivering the bills which it had purchased from 
the government. These bills were then cancelled; so 
that, in fact, no money was drawn from the foreign fund 
during the operation of paying for the stock. 1 

It may be noted, however, that, while the stock had 
been obtained in such a manner as to satisfy the law, the 
real operation consisted in getting the stock by a promise 
that the two millions to be given therefor should be paid 
in ten annual instalments of $200,000 each. Let us trace 
briefly how the government executed its promise. The 
first instalment was due the 1st of January, 1793. In 
November of the previous year, Hamilton submitted a 
proposition to the House respecting the matter. But 
Congress failed to act in time ; so Hamilton left a de- 
posit for the amount with the bank, which had the effect 
of suspending interest on the instalment. Congress took 
no action until the 2d of March, when the secretary was 
authorized to pay the instalment with foreign money. 
The attorney-general, however, decided that he could 
not apply the foreign fund in that way until the 25th of 
June ; so that not until the 20th of July following was 
the first instalment paid, — a delay of more than six 

1 Hamilton's "Works, vol. iv. pp. 365, 451. 



1790.] THE FIRST UNITED-STATES BANK. 131 

months. Hamilton's inability to provide funds from any 
other source, or at an earlier date, reveals the weak- 
ness of the treasury at that period. The second instal- 
ment was paid in the same manner. Congress was duly 
notified to make provision for paying it, but acted more 
slowly than before ; for not until the 4th of June, 1794, 
was any action taken. Hamilton resorted to the same 
expedient for stopping interest, and securing the instal- 
ment, — by making a deposit for the amount due. The 
next year Congress acted more promptly, 1 though too 
late for making payment at the time specified. The next 
two payments were not made until 1797, when a portion 
of the stock was sold, and $400,000 were applied in pay- 
ing the fourth and fifth instalments. The remaining 
payments were made with more regularity, and with less 
difficulty. 

The new government had not been going long, before 
the necessity arose for getting a temporary loan to meet 
accruing obligations. Congress authorized the President 
to empower the secretary of the treasury to make loans 
for paying the appropriations of the year, and to pledge 
the duties on imports and tonnage for their repayment. 2 
Such an anticipation of the revenue could not be avoided, 
if the expenditures of the government were to be paid 
when they became due. Though an old custom with 
other governments, the only justification for the step was 
a great and immediate necessity. At the starting of the 
government, there were no funds ; and, though steps were 
soon taken to raise a revenue, of course, no money at once 
flowed into the treasury, while its obligations soon began 
1 Jan. 8, 1795. 2 Act, March 26, 1790, 1 Cong., second session, chap. 4. 



132 FINANCIAL HISTORY OF THE UNITED STATES. [1791. 

to accrue : hence the necessity of borrowing for a short 
period, until the revenue increased sufficiently to main- 
tain the government. Grave as was the situation of the 
government at the outset, several unexpected accidents 
required the expenditure of considerable sums before 
there was time to get them by additional taxation. Thus 
these temporary loans, which were derived from the bank, 
continued for a longer period than was expected in the 
beginning, and caused no little difficulty to the treasury 
before they were discharged. Gallatin declared that this 
was poor financiering, because the government was bur- 
dened with more interest. Little did he dream, when 
pronouncing this criticism, that within fifteen years he 
would suggest the issuing of treasury notes, which were 
essentially loans of the same nature. 1 

These loans were of three distinct kinds. They were 
in anticipation of the taxes for current expenditures. 
The last of these was made in 1795. 2 The sinking- 
fund commissioners were authorized to borrow money, 
not exceeding $1,000,000 annually, in anticipation of the 
revenues, to pay interest. Each loan of this kind was 
to be reimbursed within a year from the time of making 
it. Loans were also founded on the revenues, but the 
money received was applied for a specific rather than a 
general purpose. The first loan of this kind was to cover 
the expense of an Indian war. Congress appropriated 
1150,000 from the surplus revenues of 1791, and $523,500 

1 Sketch of the Finances, Writings, vol. iii. p. 105 et seq. 

2 Act, March 3, sect. 6. There was another loan for two million dollars, 
in anticipation of the direct tax. Act, July 16, 1798, 5 Cong., second ses- 
sion, chap. 84. 



1795.1 THE FIRST UNITED-STATES BANK. 133 

from accruing duties, for this purpose. The President 
was then " empowered to take on loan, on account of the 
United States," the latter sum, which was to be reim- 
bursed from the surplus of duties. Accordingly, Hamil- 
ton contracted with the bank for a loan of $400,000. 1 
Another loan for 11,000,000 was authorized March 20, 

1794. 2 It was a part of the settling-price with Algeria. 
The Algerine corsairs had preyed on American commerce, 
inflicting serious damage ; and a number of Americans had 
been taken prisoners, and carried away to the Land of the 
Moon. Two ways were suggested for rescuing them. 
One way was to build and equip a navy, and declare 
war against Algeria: the other was to ransom the pris- 
oners. The latter was the cheapest: the former was 
the most spirited. The desire, or perhaps necessity, for 
economy, outweighed the desire to revenge the insult sus- 
tained by the nation. Only $200,000 of the sum needed 
to pay the pirates could be obtained, which was borrowed 
of the Bank of New York at five per cent interest. The 
4th of February, 1795, the President submitted the sub- 
ject to the consideration of Congress. The House re- 
ferred the matter to the secretary of the treasury to 
ascertain at what price the desired loan could be pro- 
cured. The result of his negotiations was, that the Bank 
of the United States offered to lend $800,000 in six-per- 
cent government stock, if certain duties were pledged for 
payment. The stock was borrowed, and the house of 
Barings was designated to negotiate the sale of it, and 
to remit the proceeds to Gen. Humphreys, who was con- 

1 Act, May 2, 1792, 2 Cong., first session, chap. 27, sect. 16. 

2 Act, 3 Cong., first session, chap. 7. 



134 FINANCIAL HISTORY OF THE UNITED STATES. [1795. 

ducting the negotiations for the government. Before the 
arrival of the stock in England, the market-price had 
fallen, and it was sold at a sacrifice. The secretary of 
the treasury was denounced as the author of the whole 
transaction, including the treaty, by the party opposed 
to him. The members of both parties had voted for the 
treaty ; the terms of the loan had been communicated to 
the committee appointed by Congress to consider the sub- 
ject, and approved by them ; and the bill, which was the 
outcome of their consideration of the matter, was passed 
without opposition. The measure could have been easily 
defeated by the party who denounced the action of the 
secretary, for they constituted the majority. There was 
no ground whatever for complaining of Wolcott's con- 
duct. 1 

The third loan of the bank was for $1,000,000. It 
was authorized at the same time as the Algerine loan. 2 
Differences multiplied and intensified, first with Great 
Britain, and afterward with France ; and more money 
was needed to prepare for war than could be raised imme- 
diately in the ordinary manner. The next loan of the 
bank was for $2,000,000, which was authorized in Decem- 
ber, 1794. 3 The rate of interest was five per cent. The 
money was spent in preparing for war. In February 4 of 
the following year, another loan for $800,000 was author- 
ized, to reimburse the bank for a similar sum borrowed 



i Ellsworth's Letter to Wolcott, March 8, 1796, Gihbs's Adin., vol i. 
p. 306. Ibid., pp. 141, 188, 320, 434. 

2 Act, March 20, 1794, 3 Cong., first session, chap. 8. 

3 Act, Dec. 18, 1794, 3 Cong., second session, chap. 4. 

4 Act, Feb. 21, 1795, 3 Cong., second session, chap. 25. 



1795.] THE FIRST UNITED-STATES BANK. 135 

the year before. A month afterward 1 the government 
was authorized to borrow the money appropriated for in- 
creasing the naval armament, and other purposes con- 
nected with the army and navy. Under this authority, 
$1,000,000 were borrowed, — one-half in April, and the 
balance in October. On the same day 2 a law was enacted 
for the support of the public credit and the redemption 
of the public debt. In January of the following year, 
therefore, the commissioners of the sinking-fund borrowed 
$500,000 of the United-States bank to pay the interest 
on the public debt. The same }~ear, 3 also, under a law 
which empowered them to borrow not exceeding the sum 
just mentioned, to pay any loan due to the Bank of the 
United States or the Bank of New York, $320,000 were 
borrowed of the latter institution. One other loan of 
$200,000 was made by Wolcott, of the United-States 
bank, the last of December, 1798. 

Thus, from the beginning, the Bank of the United 
States was very accommodating to the government. But 
the loans were not promptly paid : the balance grew 
larger every year. At the end of 1792 the amount was 
$2,556,595.56, which increased to $6,200,000 three years 
afterward. 4 Both Hamilton and Wolcott had urged the 
increase of taxation as the true remedy for preventing 
an accumulation of indebtedness, but Congress was very 
slow in applying it. The bank became impatient. The 
loan of so large a portion of its funds to the government 

1 Act, March 3, 1795, 3 Cong., second session, chap. 46. 

2 Ibid., chap. 45. 3 Act, May 31, 1796, 4 Cong., first session, chap. 44. 

4 See Otis's Report on the Condition of the Treasury Department, Jan. 
28, 1801, 1 Finance, p. 690. 



136 FINANCIAL HISTOEY OF THE UNITED STATES. [1796. 

crippled its operations. The expedient proposed by Wol- 
cott was to commute the debt into a funded domestic 
stock, bearing six per cent interest, and irredeemable for 
such a period as would invite purchasers at par. A 
bill was introduced into the House, authorizing the com- 
missioners of the sinking-fund to issue six-per-cent 
stocks to the amount of 15,000,000, which they were 
restricted from selling below par, the proceeds of which 
were to be paid to the bank. The stock was to be 
redeemable in 1819. In consequence of delaying tax- 
ation, the credit of the government had been weak- 
ened ; and the stock could not be sold at par when the 
bill passed the House, and the directors of the bank 
saw very clearly that the bill would furnish no relief. 
They addressed a letter to the secretary of the treasury. 
"Public funds," said the directors, "like other prop- 
erty, are exposed to feel the impression which contingent 
circumstances operate upon its value : a stipulation, there- 
fore, that it shall not be sold but at a given price, in 
order to extinguish the debts contracted with the bank, 
is an illusory provision, and places the demands of the 
institution on a very unsafe and unsatisfactory footing. 
It is likewise opposed to the practice of all nations 
habituated to the support of public credit, under the 
operation of a funding-system. They therefore cannot 
but view a conditional arrangement, by which the bank 
may be compelled to wait an indefinite period of time 
for payment, as an infraction of a contract, and incom- 
patible with the justice of their country. In bank opera- 
tions, where punctuality is so essential, and therefore 
so strictly observed, there is but little difference betwixt 



1796.] THE FIRST UNITED-STATES BANK. 137 

a delay and a refusal of payment." 1 They could get no 
relief by purchasing the stock, even at the rate speci- 
fied, though not worth so much, because the charter 
precluded their doing such a thing. 

The next day Wolcott addressed a letter to the Sen- 
ate, stating that the bill with this restriction would not 
furnish relief. As there was no possibility of obtaining 
the money abroad, nor of Congress providing a sufficient 
revenue, he suggested the necessity of giving the com- 
missioners power to obtain loans unclogged by any condi- 
tions which could possibly occasion a failure of public 
credit. The Act, therefore, was modified. Not more than 
one-half the stock could be sold under par ; and, as a 
final resource, the commissioners were authorized to sell 
the bank-shares for the same purpose. 

Even thus amended, the Act was not what it ought to 
have been. The fact cannot be denied, that the majority 
in Congress, who were now opposed to the administration, 
did not care to relieve the government from its financial 
embarrassments. They granted appropriations without 
hesitation, but refused to increase the taxes, which was 
the true remedy. Had this step been taken, these tem- 
porary obligations would not have multiplied so rapidly. 
But they declined to do so ; and, when no way was left 
except to fund them, Congress did this so slowly and in- 
effectively, that the good opinion hitherto entertained of 
the honesty of that body was shaken. 2 Chauncey Good- 
rich, one of the most prominent and fair-minded members 

1 Communication to Senate, May 11, 1796, 1 Finance, p. 412. 

2 Gibbs's Adm., vol. i. p. 346. Act, May 31, 1796, 4 Cong., first session, 
cbap. 44. 



138 FINANCIAL HISTORY OF THE UNITED STATES. [1796. 

of the House, wrote concerning the plan of funding the 
bank-loans, " If this operation had been adopted early in 
the session, the stock could now have been sold at or 
above par. The delay and the wound to public credit, 
from the preposterous conduct of the House during the 
session, has created some embarrassments to a successful 
administration of the finances." 2 Three weeks later he 
wrote, " The most serious embarrassment is in the treas- 
ury department, owing to the perverse and ruinous delay 
of the House of Representatives in not seriously and early 
adopting the system devised by the secretary of the treas- 
ury : that, I have before advised you, was to create stock 
to pay the anticipations at the bank. Two months ago 
stock would have sold at par : now that can't be done. 
The Senate have given an unexpected and unfortunate 
direction to the business." 2 What that turn was, we 
have just described. 

The new stock failed to attract purchasers. After sev- 
eral months had passed, only $80,000 had been subscribed, 
and there were no more subscriptions. So the commis- 
sioners were compelled to sell a portion of the bank- 
stock to reimburse the bank. Hamilton denounced the 
action of Congress, and wrote to Wolcott, "I shall con- 
sider it as one of the most infatuated steps that ever was 
adopted." 3 Of the five thousand shares owned by the 
government, twenty-one hundred and sixty were sold at 
twenty-five per cent advance, or for $500 per share. The 
sum received, $1,080,000, and also $120,000 obtained 
from the sale of the new government stock, were paid to 

i Letter to Oliver Wolcott, May 6, 1796, Gibbs's Adin., vol. i. p. 336. 
2 Ibid., p. 339. 3 Works, vol. vi. p. 143. 



1793.] THE FIRST UNITED-STATES BANK. 139 

the bank. Shortly afterwards six hundred and twenty 
shares more were sold for $304, 260. 1 After that period 
the government made more strenuous efforts to reduce 
its indebtedness to the bank, but several years elapsed 
before it was finally discharged. 

The opposition which was shown to the establishment 
of the bank 2 continued throughout its existence. One 
of the earliest charges brought against Hamilton, after 
accepting office, was that he displayed favoritism toward 
the bank in drawing foreign bills, and depositing the 
proceeds there solely for its benefit. He contended that 
the funds were drawn to purchase a portion of the public 
debt, — an application of the money which was " pro- 
ductive of positive and important advantages." Ham- 
ilton completely refuted the charge by showing that the 
larger portion of the bills had been drawn by the banks 
of North America and New York, and whatever benefit 
had accrued from the operation was gained by them. 
When the national bank was established, it was under- 
stood that the public deposits would flow into it ; yet 
they went there gradually, and not by any sudden altera- 
tion of the current. Indeed, Hamilton sought to remove 
them by way of payments, rather than by direct trans- 
fer. So far did he succeed in this intention, that he 
declared a cautious regard had been paid to the conven- 
ience of the former institutions, and the reverse of a 
policy unduly solicitous for the accommodation of the 

1 For account of sales of shares, see 1 Finance, pp. 467-500 ; 2 Ibid., 
p. 351. 

2 See An Inquiry into the Principles and Tendency of Certain Public 
Measures, Philadelphia, 1794. 



140 FINANCIAL HISTORY OF THE UNITED STATES. [1803. 

Bank of the United States had prevailed. Indeed, so 
much had this been the case, that it might be proved, if 
it were proper to enter into the proof, that a criticism 
had been brought upon the conduct of the department, 
as consulting less the accommodation of the last-named 
institution than was due to the government and to the 
services expected of it. 1 

¥ Doubtless, many of the criticisms against Hamilton's 
administration of the finances of the government sprang 
from ignorance, though not all of them. So long as he 
remained at his post, his enemies never wearied in assail- 
ing him for his dealings with the bank. They were more 
merciful toward his successor, but even Wolcott was not 
left wholly to himself. When their party came into 
power, their jealousy of the institution broke forth. In 
the autumn of 1802 Jefferson wrote to Gallatin that he 
should make a judicious distribution of his favors among 
all the banks, since the stock of the United-States bank 
was held largely by foreigners ; and " were the Bank of 
the United States to swallow up the others, and monopo- 
lize the whole banking business of the United States, 
which the demands we furnish them with tend shortly 
to favor, we might, on a misunderstanding with a foreign 
power, be immensely embarrassed by any disaffection in 
( that bank." I On the 12th of July, 1803, he again wrote, 
" I am decidedly in favor of making all the banks Repub- 
lican by sharing deposits among them in proportion to 
the dispositions they show. If the law now forbid it, 
we should not permit another session of Congress to pass 
without amending it. It is material to the safety of 

1 Hamilton's Works, vol. iii. p. 413. 



1803.] THE FIRST UNITED-STATES BANK. 141 

republicanism to detach the mercantile interests from 
its enemies, and incorporate them into the body of its 
friends. A merchant is naturally a Republican, and 
could be otherwise only from a vitiated state of things/],/ 
Jefferson's feeling toward the bank was very much like 
the feeling of the Jacobites, during the reign of Queen 
Anne, toward the Bank of England, who looked forward 
to its destruction as the most probable means of their 
restoration to power. Jefferson's hostility was mainly 
rooted in the fact that the managers and stockholders of 
the bank belonged to the political party opposed to him, 
and he desired to weaken the institution in order to 
destroy any influence that it might possibly have in the 
sphere of politics. Adams says that Gallatin "gently 
put aside these demonstrations of Mr. Jefferson, and 
administered his department on business principles, with 
as little regard to political influence as possible. | He 
looked on the bank as an instrument that could not be 
safely thrown away ; without it, his financial operations 
would be much more slow, more costly, more hazardous, 
and more troublesome, than with it: indeed, he was 
quite aware that its fall would necessarily be followed by 
much financial confusion ; and he had no mind to let 
such experiments in finance come between him and his 
great administrative objects. He was therefore, by neces- 
sity, a friend and protector of the bank." 

Jefferson's hostility to the bank was manifested on 
another occasion. When the Territory of Louisiana was 
purchased, Gallatin was desirous of establishing a branch 
bank at New Orleans. He considered the step of the 
highest importance ; but his chief was vehemently op- 



142 FINANCIAL HISTORY OF THE UNITED STATBS. * [1804. 

posed to such an extension of the bank. He wrote to 
Gallatin, " This institution is one of the most destdlj 
hostility existing against the principles and form^of our 
constitution. . . . What an obstruction could not this 
Bank of the United States, with all its branch banks, be 
in time of war? It might dictate to us the peftcetwe 
should accept, or withdraw its aid. Ought we,^then, to 
give further growth to an institution so powerful, so 
hostile?" These words fell lightly on Gallatin, as will 
be seen from his reply, written on the same day as Jef- 
ferson's letter \ "I am extremely anxious to see a bank 
at New Orleans. Considering the distance of that place, 
our own security, and even that of the collector, will be 
eminently promoted, and the transmission of moneys 
arising from the impost and sales of lands in the Missis- 
sippi Territory would without it be a very difficult and 
sometimes dangerous operation. Against this there are 
none but political objections ; and those will lose much of 
their force when the little injury they can do us, and the 
dependence in which they are on government, are duly 
estimated. They may vote as they please, and take their 
own papers ; but they are formidable only as indviduals, 
and not as bankers. Whenever they shall appear to be 
really dangerous, they are completely in our power, and 
may be crushed." Jefferson yielded, and the bank was 
authorized. { Meanwhile, Gov. Claiborne had undertaken 
to establish a bank there by his own authority. Gallatin 
was very angry at this proceeding, and wrote a letter to 
Jefferson condemning the act. 1 

As long as the bank existed, the funds of the govern- 

1 Adams's Life of Gallatin, pp. 308, 321. 



1809.] THE FIRST UKITED-STATES BANK. 143 

ment were deposited with it, to the credit of the United- 
States treasurer. They were considered in the treasury 
from the time of depositing them, and were subject to his 
control. 1 In 1802 the balance of the bank-stock owned by 
the government was sold at forty-five per cent advance. 
Thenceforth the government ceased to be a stockholder. 

During Gallatin's administration of the national 
finances, once only did he apply to the bank for a 
loan. The benefits derived from it by the govern- 
ment were neither few nor unimportant. These were 
stated by Gallatin himself in a communication relating 
to the renewal of the charter. The first benefit was with 
respect to the safe-keeping of the public money. This 
applied not only to money in the treasury, but also to 
the funds in the hands of the principal collectors, of the 
commissioners of loans, and of several other officers, and 
afforded one of the best securities against delinquencies. 
It was also a very valuable agent in the transmission of 
public money. As the collections always, in various quar- 
ters of the Union, either exceeded or fell short of the 
expenditures in the same places, a perpetual transmission 
of money, of purchases of remittances, at the risk and 
expense of the United States, would have been neces- 
sary in order to meet those demands, had not the bank 
been established , but now all this work was done by 
-it, at its own risk and expense, wherever its branches 
existed. Another benefit related to the collection of 
the revenue. The punctuality of payments introduced 
by the banking-system, and the facilities which it afforded 
to the importers indebted for revenue bonds, were among 

1 Hamilton's Works, vol. iii. p. 449. 



144 FINANCIAL HISTORY OF THE UNITED STATES. [1809. 

the causes which had enabled the government to collect 
with so great facility, and with so few losses, the large 
revenues derived from imports. Lastly, was the aid fur- 
nished to the government in the way of loans. During 
the first ten years of Gallatin's administration, the gov- 
ernment had been so prosperous as to meet its obligations 
without asking the bank for assistance ; but previously 
it "had been eminently useful in making the advances, 
which, under different circumstances, were necessary." 
And a similar disposition had been repeatedly evinced, 
so Gallatin affirmed, whenever the aspect of affairs had 
rendered it proper to ascertain whether new loans might, 
if wanted, be obtained. 1 

In regard to accommodating the public, the Republi- 
cans complained that at first the bank had been less 
mindful of their interests than of the interests of per- 
sons belonging to the Federal party. The stockholders 
of the branch in New York and of the Bank of New 
York were principally Federalists ; and " Politicus " 
says that " the benefit of those institutions was chiefly 
confined to the adherents of one political sect. Accom- 
modations were carefully withheld or sparingly bestowed 
upon members of the opposite party. Such as were 
active, or had rendered themselves obnoxious, in political 
pursuits, were certain to be excluded from favor , and it 
became at length impossible for men engaged in trade 
to advocate Republican sentiments without sustaining 
material injury." The establishing of the Manhattan 
Company effected a peaceful revolution; "the business 
of banking was placed on a more equitable foundation ; 

i March 3, 1809, 2 Finance, p. 351. 



1809.] THE FIKST UNITED-STATES BANK. 145 

and the merchants belonging to both parties, entertaining 
a reasonable hope of obtaining discounts, exercised their 
political sentiments with independence." 2 

In 1808, three years before its charter expired, the 
stockholders petitioned for its renewal. 2 They were soli- 
citous; for if Congress refused to grant an extension, 
which was feared, it was necessary to prepare for closing 
the affairs of the institution. In their petition, they set 
forth the advantages reaped by the government. They 
affirmed that the profit on the sale of its stock amounted 
to more than six hundred and fifty thousand dollars. 
Keferring to the support derived from the government, 
the petitioners declared that it consisted, not so much 
in the deposit of public money and public patronage, as 
in the confidence of the government, founded on a con- 
stant knowledge of its interior management and condi- 
tion; which, in turn, had attracted the confidence of 
Europe as well as America toward the institution, and 
conferred upon it a character of dignity and stability, and 
enabled its directors to set an example of prudence, can- 
dor, and impartiality, honorable to themselves, and bene- 
ficial to the community. 

The bank now formed a piece of the financial machine- 
ry of the government almost as important as was the 
Bank of St. George to the Ligurian republic. This is 
why Gallatin so strongly favored a renewal of the charter, 
although a very large portion of his party unfortunately 
did not. The numerous banks already established under 

1 An Impartial Inquiry into Certain Parts of the Conduct of Gov. 
Lewis, p. 8. 

2 2 Finance, p. 301. 



146 FINANCIAL HISTORY OF THE UNITED STATES. [1810. 

the authority of the several States, might, he said, afford 
considerable assistance to the government in its fiscal op- 
erations. There were none, however, which could effect 
the transmission of public money with the same facility 
as the Bank of the United States. The superior capital 
of that institution offered, also, a greater security against 
any possible loss, and greater resources for loans. Nor 
was it desirable for the government to be entirely depend- 
ent on institutions over which it exercised no control. A 
national bank, deriving its charter from the national Legis- 
lature, would, under every emergency, feel stronger induce- 
ments, both from interest and from a sense of duty, to 
afford to the Union every assistance in its power. On 
other occasions he pressed his arguments in favor of con- 
tinuing the institution, while petitions appeared from 
many quarters asking for the same thing. There was, 
however, powerful opposition. The fact that foreigners 
now owned the larger portion of the stock led many to 
oppose a renewal of the charter. 1 Thus the question 
drifted on the tide of uncertainty, until the meeting of 
Congress in December, 1810, when a decision could no 
longer be delayed. The bank had become a greater 
necessity than ever to the country ; and Gallatin exerted 
his utmost power to prevent its destruction. " It was no 
mere matter of party or of personal feeling ; the bank 
at that moment was essential to public safety ; to lose it 
might be a question of national life." 2 Moreover, it was 
understood that the measure was a test of Gallatin's 
power, whose unpopularity with a considerable faction 
of his own party had now become very great. To over- 

i 2 Finance, pp. 451, 460, 479, 480. 2 Adams's Life of Gallatin, p. 426. 



1811.] THE FIKST UNITED-STATES BANK. 147 

throw the bank might lead to the resignation of Gallatin 
himself, — an event which his enemies earnestly desired. 

The debate in both branches of Congress was long, 
able, and bitter. The old question of the constitution- 
ality of the bank was discussed at great length ; and its 
opponents denied that the institution was at all necessary 
to aid the government in discharging its functions, — that 
there was a redundancy of capital, which was evident 
from the rapid multiplying of the State banks. In reply 
to the assertion that the quantity of specie would be re- 
duced by the exportation of the large amount of its capi- 
tal belonging to foreigners, it was declared that " nothing 
could be more absurd." The danger that in the future 
the bank would be the centre of a vast political influence, 
which would be exerted to the injury of the people, was 
magnified in a very extraordinary manner. The reasons 
for renewing the charter were stated by no one with more 
ability and clearness than by Mr. Fiske of New York. 
One of the ill effects of destroying the charter would be 
the retiring of a large portion of the circulating medium 
of the country. This was estimated at fifty millions, 
twenty-four millions of which would be called if the 
charter were not renewed. The effect this would have 
upon the various interests of the country, said Mr. Fiske, 
could neither be described nor conceived. It would in- 
evitably give a general and heavy shock to all paper 
credit. And what could be substituted ? Of silver and 
gold there was not enough. From the best estimates, 
there were not ten million dollars of specie in all the 
cities and trading-towns; and this, he averred, would 
be collected by the bank. The prices of all stocks and 



148 FINANCIAL HISTORY OF THE UNITED STATES. [1811. 

property would be depressed ; and such a change in the 
system would occasion great embarrassment, disappoint- 
ment, and distress. The United-States bank had faith- 
fully collected the revenues ; but, if destroyed, how were 
these to be collected ? Through the medium of the State 
banks ? No prudent man, in his individual concerns, 
would think of doing such a thing. "You discard a 
faithful, honest, responsible agent, whose integrity and 
fidelity you have known for twenty years, and you place 
your estate in the hands and at the disposal of twenty or 
thirty entire strangers, of whose character and responsi- 
bility you know nothing, nor have the means of acquiring 
any knowledge, and over whose conduct you have no con- 
trol. Should an individual act thus with his property, he 
would be deemed to have lost all regard for it, if not con- 
sidered a madman." Another difficulty was then pointed 
out, the truth and severity of which the government too 
soon was to learn : it was the difficulty of finding a 
convenient medium to transmit from one portion of the 
country to another. Specie could not be procured ; and 
what State bank-bills, if sent, would pass current in every 
part of the United States, like the bills of the bank ? 
" Carolina and Kentucky bills are unknown, and would 
not pass in New York or Boston ; and New- York bills 
would not pass in Kentucky or Carolina. New-England 
bills do not pass in New York but at a considerable dis- 
count. But under the present system, if government 
have five millions deposited in Boston, and it is required to 
be paid at New Orleans, a draft is given by the branch in 
Boston upon that in New Orleans, and the money is paid 
at the latter place as soon as the mail can travel there." 



1811.] THE FIRST UNITED-STATES BANK. 149 

We shall close this review of the debate with one 
more extract, the prophetic importance of which will 
interest the reader, notwithstanding its length. 

"It has been urged," continued Mr. Fiske, "that we have 
too much paper in circulation. Admit it. The destruction 
of this bank will increase, not diminish, the quantity of circu- 
lating bank-paper ; and I consider the embarrassment which 
must immediately follow the closing of the concerns of this 
institution as the least of the evils the community will expe- 
rience from a refusal to renew the charter. Congress may, 
indeed, prevent the operation of this bank after the 4th of 
March ; but Congress can neither prevent a spirit of trade, 
nor subdue the passion for speculation : for while we are 
debating the expediency of destroying this bank, in order to 
free the country from the mischiefs of an extended bank 
credit, we find new banks springing into existence in every 
direction. We have no less than five bills now on our table 
for incorporating this number of banks in this ten-mile square 
district. We are told that these applications are an evidence 
of capital or of corruption ; but I consider them rather as 
evidence of the destroying spirit of speculation, which threatens 
to stand upon the ruins of the United-States bank till the 
country shall be overwhelmed with new emissions of paper 
from these new manufactories. The banks established by 
the State Legislatures will scramble for the privilege of filling 
the chasm to be made by the destruction of the Bank of the 
United States. Already are they preparing for the patriotic 
endeavor. Our State Legislatures are to be importuned to 
become bank-jobbers and joint undertakers and copartners 
in the enterprise. The profits are to furnish revenues suffi- 
cient to satisfy both avarice and ambition. Notwithstanding 
the provision in the constitution, that no State shall ' emit 



150 FINANCIAL HISTORY OF THE UNITED STATES. [1811. 

bills of credit,' we find almost every State in the Union, inter- 
ested in banks, authorizing corporations to issue bank-bills, 
which, so far as they exceed the capital upon which they are 
issued, are in the nature of bills of credit. Several States own 
stock in these banks, and, as such stockholders, are responsi- 
ble for the payment of these bills. Pennsylvania, Virginia, and 
Vermont are large stockholders in their State banks. New 
York and North Carolina have also an interest in some of 
their banks. The States cannot be restrained ; nor is it to be 
wished that they should be prohibited altogether from incor- 
porating banks. But what difficulties are we to experience 
in resorting to these numerous and conflicting institutions for 
the collection, safe-keeping, and transmission of our revenues? 
The deposits of the government will render banking profitable 
to the favorite bank that receives them. The aid of the gov- 
ernment will make this bank superior in funds and credit to 
any of the others which do not share this solid patronage. 
This will produce jealousies and collisions of interests between 
banks in the same State, and thus form cabals against the 
State and general governments. It will not stop here, but 
will extend from State to State. If the States and State banks 
are to regulate trade in the article of paper money, they may 
prescribe the terms. To give the preference to their own 
paper, they may exclude that of any other State from circu- 
lation among them in the same way that the paper of unin- 
corporated banks is excluded by some States, and bills of a 
certain amount from others." 

The evils depicted so soberly by Mr. Fiske were en- 
countered in due time. The debate in the House was 
continued for many days ; but, when at last a vote was 
reached, the motion to postpone indefinitely the bill pro- 
viding for a renewal was carried by one majority. Many 



1811.] THE FIRST UNITED-STATES BANK, 15l 

of Gallatin's best friends voted against renewal. All the 
Federalists voted on his side. His personal enemies turned 
the scale. The debate was then transferred to the Sen- 
ate. William H. Crawford appeared there as Gallatin's 
champion. He supported the charter with such courage, 
energy, and ability, that he earned Gallatin's lasting 
gratitude, and made himself the representative of the 
administration in the Senate, and the favorite candidate 
of the JefTersonian triumvirate for succession to the presi- 
dency. The longest speech was delivered by Senator 
Smith of Maryland, covering two days, in which he tried 
to prove that the whole theory of the usefulness of a 
national bank was a delusion; that State banks were 
better depositories of the public money; that the secre- 
tary of the treasury was quite mistaken in all his state- 
ments about the convenience of the bank, even in regard 
to remittances and foreign exchanges; that no possible 
trouble could arise from abolishing the bank; and that 
the constitutional objection was fatal. Senator Smith's 
brother was secretary of state, and a bitter enemy of 
Gallatin ; and so was the senator himself. No one strove 
harder to defeat Gallatin's plans, and to drive him from 
his post. The vote in the Senate was a tie, — seventeen 
to seventeen. George Clinton, the Vice-President, whose 
hostility to the President was generally known, and whose 
regard for Gallatin was none too strong, decided the 
question in the negative. Thus the bank was doomed to 
expire within the time originally limited in the charter. 
Its destroyers by this act exhibited as dense ignorance 
of the great worth of the bank to the government and 
to the people as the emperor Severus did of the sources 



152 FINANCIAL HISTORY OF THE UNITED STATES. [1811. 

of Memnon's music when he ordered the statue to be 
repaired. 1 

When the fate of the institution was determined, Gal- 
latin directed the collectors of all the chief ports to stop 
depositing custom-house bonds for collection in the bank, 
and to withdraw those falling due after the third day of 
March, 1811, and to deposit them with other banks, 
which were designated. The deposits were gradually 
withdrawn ; and the government account with the bank 
was closed the 2d of September, 1811, except a small bal- 
ance in the branch at New Orleans. 2 When closing the 
bank, the question was raised, What obligation remains 
on the part of the government to receive its notes in pay- 
ment of duties after its dissolution ? Congress had not pro- 
vided for such an event. Gallatin directed the collectors 
and receivers of public money not to receive any which 
the bank refused to take from the government, or which 
could not be conveniently redeemed. At first no serious 
difficulties arose from refusing to prolong the life of the 
bank. There was no difficulty in transmitting public 
funds, and the revenue generally was collected as prompt- 
ly as it had previously been. In March the Senate were 
informed that the apprehensions of distress resulting from 
a non-renewal of the charter were far from realization in 
Philadelphia. It had long been obvious that the vacuum 

1 The dangers that were apprehended from closing the bank are con- 
cisely set forth by Dr Bollman, in the postscript to the second edition of 
his Paragraphs on Banks; and by Mr. Carey, in his Desultory Reflections 
upon the Ruinous Consequences of a Non-Renewal of the Charter of the 
Bank of the United States. 

2 Communication on Public Deposits in Banks, Jan. 8, 1812, 2 Finance, 
p. 516. 



1813.] THE FIRST UNITED-STATES BANK. 153 

in the circulation of the country, produced by the with- 
drawal of the notes of the Bank of the United States, 
would be filled with the issues of other banks. " This 
operation," said the committee who announced the pleas- 
ing intelligence, "is now actually going on: the paper 
of the Bank of the United States is rapidly returning, 
and that of other banks is taking its place. Their ability 
to enlarge their accommodations is proportionately en- 
hanced; and, when it shall be further increased by a 
removal into their vaults of those deposits which are 
in possession of the Bank of the United States, the 
injurious effects of a dissolution of the corporation will 
be found to consist in an accelerated disclosure of the 
actual condition of those who have been supported by 
the credit of others, but whose insolvent or tottering 
situation, known to the bank, has been concealed from 
the public at large." 1 

How meagre their vision ! They could clearly, though 
painfully, see the figure of Gallatin in the financial hori- 
zon, but hardly any thing else. He covered the whole 
field. But let us look ahead to the opening of 1812. The 
circulating capital of the country was concentrated in the 
large cities, chiefly north of the Potomac, and more than 
one-fourth was in New England. The Eastern States 
were flooded with a heavy importation of foreign goods, 
and specie was sent abroad to pay for them. A much 
larger amount went the same way to pay foreign share- 
holders of the bank, who owned a very large portion of 
its capital. Previously this specie had been slumbering 

1 Clay's Report on the Bank of the United States, March 2, 1811, 
2 Finance, p. 486. 



154 FINANCIAL HISTORY OF THE UNITED STATES. [1813. 

in the vaults of the national bank. It now passed 
through those of the Eastern banks on its way to 
Great Britain. In the Massachusetts banks, the quantity 
rose from $1 ,700,000 in June, 1811, to $3,900,000 within 
a year, and to 17,300,000 in June, 1814. Noiselessly, a 
large portion of it disappeared from the country. Says 
Adams, "Even the most prejudiced and meanest intelli- 
gence could now understand why the destruction of the 
United-States bank threatened to decide the fate of the 
war, and of the Union itself. The mere property in 
the bank, important as this was, counted for compara- 
tively little in the calculation; although 17,000,000 of 
foreign capital invested in its stock were lost to the coun- 
try by its dissolution, and had been remitted to Europe 
shortly before the war." * By such action, Congress 
showed the same lack of wisdom as did the Spanish 
statesmen when they drove the Moors into the sandy 
wastes of Africa, taking millions of ducats with them at 
the very time that money was most wanted, when taxation 
was high, and a revenue very difficult to obtain. 

This loss of specie was very serious, but still worse 
things happened. State banks rapidly multiplied : their 
managers, ignoring the plainest lessons of wisdom in 
issuing bank-notes, were soon compelled to announce the 
suspension of specie payments, — an event which pro- 
jected its long inevitable train of injurious consequences 
into all public and private business. As Egypt was the 
gift of the Nile, so did the people now fully realize that 
the sound money which had circulated throughout the 
country for twenty years was the gift of the United-States 

i Adams's Life of Gallatin, p. 474. 



1812.] THE FIRST UNITED-STATES BANK. 155 

bank. They then found out how magical had been the 
power of the gold belonging to the bank during these 
years, even though hidden in its vaults from public sight. 
Had the bank been suffered to live, Gallatin believed that 
the suspension of specie payments would have been pre- 
vented, and that the terrible disorganization of the whole 
system of internal exchanges, which nearly brought the 
government to a dead stop, would not have happened. 
Such was the ultimate and disastrous effect of the refusal 
of Congress to renew the charter of the bank. The 
" factious incompetence " which Congress displayed " cost 
the nation infinite loss and trouble," and did, in truth, 
imperil its very existence. 1 

1 Adams's Life of Gallatin, p. 430. Gallatin affirmed in 1831, " It is our 
deliberate opinion that the suspension might have been prevented at the 
time when it took place, had the former Bank of the United States been 
still in existence. The exaggerated increase of State banks, occasioned 
by the dissolution of that institution, would not have occurred. That bank 
would, as before, have restrained within proper bounds, and checked, their 
issues ; and, through the means of its offices, it would have been in posses- 
sion of the earliest symptoms of the approaching danger. It would have 
put the treasury department on its guard; both acting in concert would 
certainly have been able at least to retard the event ; and, as the treaty of 
peace was ratified within less than six months after the suspension took 
place, that catastrophe would have been altogether avoided." — Considera- 
tions on the Currency and Banking System of the U. S., Writings, vol. iii. 
p. 287. 



156 FINANCIAL HISTORY OF THE UNITED STATES. [1791. 



CHAPTER VIII. 

COINAGE. 

The Colonies, notwithstanding their political relation 
to Great Britain previous to the separation in 1776, had 
never followed very closely the monetary system existing 
in the mother-country. Long before the Revolution, the 
Spanish dollar, to a very considerable extent, had usurped 
the function of the pound sterling as the basis of reckon- 
ing. The" paper money issued by the Continental Con- 
gress was not made payable in pounds, shillings, or pence, 
but in Spanish dollars, which had found their way here 
from Havana. 

The need of a legal-money standard, and of a mint for 
coining it, had been realized during the existence of the 
Confederation ; and Morris, Jefferson, and others had con- 
sidered the subject. Laws had been enacted from this 
stirring of the question, but hardly any thing was done 
toward executing them. 1 When the new government was 
established, Hamilton was directed to report a plan for 
the creation of a mint; and in 1791 he presented his 
report to Congress. 2 "The great variety of considera- 
tions — nice, intricate, and important — involved in the 
subject ; the general state of debtor and creditor ; all the 

1 See Financial History, previous volume, pp. 301-305. ' 

2 Works, vol. iii. p. 149. 



1791.] COINAGE. 157 

relations and consequences of price ; the essential interests 
of trade and industry; the value of all property; the 
whole income, both of the State and of individuals," — 
these remarks, which appear in the beginning of his 
report, show how fully Hamilton comprehended the im- 
portance of the inquiry. 

" The dollar originally contemplated in the money 
transactions of this country, by successive diminutions of 
its weight and fineness, had depreciated five per cent; 
and yet the new dollar had a currency in place of the old 
with scarcely any attention to the difference between 
them. Nor would it require," he continued, " any argu- 
ment, to prove that a nation ought not to suffer the value 
of the property of its citizens, to fluctuate with the fluc- 
tuations of a foreign mint, and to change with the changes 
in the regulations of a foreign sovereign." 

Hamilton then proceeds to inquire what ought to be 
the nature of the money-unit; the ratio between gold 
and silver (if coins of both metals were to be estab- 
lished) ; the proportion and composition of the alloy in 
each kind ; ought the expense of coining to be defrayed 
by the government, or out of the material itself; the 
number, denominations, sizes, and devices of the coins ; 
and ought foreign coins to be allowed to pass cur- 
rent or not, and, if allowed, at what rate, and for what 
period. 

Concerning several of these points, Hamilton's views 
deserve extended consideration. In regard to the first 
question, the money-unit, he inquired what it actually 
was. "The pound, though of various value, was the 
actual unit of the money of account ; " but the manner of 



158 FINANCIAL HISTORY OF THE UNITED STATES. [1791. 

adjusting foreign exchanges indicated that " the dollar 
was best entitled to that character."' 
/ Of the different dollars, the dollar in actual circulation, 
he thought, should be regarded the actual money-unit, 
rather than the ancient dollar, — a conclusion strength- 
ened by the fact that "it was more conformable to the true 
existing proportion between the two metals in this coun- 
try, and to that which obtains in the commercial world 
generally." An investigation into the existing ratio be- 
tween gold and silver yielded no precise definition of the 
present unit, but furnished data from which it could be 
ascertained. In determining what ought to be the future 
money-unit, he inquired whether it ought to be attached 
to one of the metals in preference to the other, or other- 
wise ; and, if to either, to which of them. The resolves 
of the old Congress showed that the unit was not attached 
to either coin. Contrary to the ideas which had prevailed, 
he proposed that no preference should be given to either ; 
though, if there were to be, gold should be the favored 
metal rather than silver, because it possessed greater 
stability. The principal reason why such a preference 
should not be given was, that, in attaching the unit to 
either of the metals, the office of the other as money 
would be destroyed : it would become mere merchandise, 
thereby diminishing the quantity of circulating medium, 
and impairing the utility of one of the metals. 

The other point deserving notice wasTwEal' ratio should 
be established between the two metals, — a question of 
great moment, both from the consequence that an over- 
valuation of one would tend to banish the other, and be- 
cause it would produce a diminution of the total quantity 



1791.] COINAGE. 159 

of specie m the country ; though the latter conclusion, 
from local and particular circumstances, he thought, would 
be received with caution. The effect of an over-valuation, 
to produce a greater and more frequent disturbance of the 
state of the money-unit by a greater and more frequent 
diversity between the legal market proportion of the 
metals, was not overlooked. In establishing this ratio, 
Hamilton wisely remarked that the commercial relations 
of this country with Great Britain, and the future pay- 
ments of interest to Holland, should be considered. Thus 
viewing the question, he believed that the commercial 
proportion existing in those countries ought to be pre- 
served here. All the other points in this report received 
candid and thorough consideration. 

The friends of Jefferson also introduced a bill, which 
was passed, directing him to report a plan for establishing 
uniformity in the currency, weights, and measures of the 
United States. During the second session of Congress 
his report appeared. 

He proposed a new coinage for the United States, of a 
different value from the dollars then in circulation. He 
proposed to add "five grains of silver to the proper 
weight of the dollar, without a proportional augmentation 
of its legal value." So serious a change in the unit was 
too great to secure its adoption. 

In 1792 1 a mint was established, the officers of which 
were a director, an assayer, a chief coiner, an engraver, 
and a treasurer. Gold, silver, and copper were to be 
coined. The piece of greatest value was an eagle, " to be 
of the value of ten dollars or units," and to contain 247£ 

1 Act, April 2, 2 Cong., first session, chap. 16. 



160 FINANCIAL HISTORY OF THE UNITED STATES. [1793. 

grains of pure, or 270 grains of standard gold. "Dol- 
lars or units " also were to be coined, " of the value of a 
Spanish milled dollar," then current, and to contain 371 T 4 g 
grains of pure, or 416 grains of standard silver. 1 The 
half and quarter dollar, and dimes and half-dimes, were 
to contain the same proportions of silver. Cents were to 
be coined of the value of the one-hundredth part of a 
dollar, and to contain eleven pennyweights of copper. 
Half-cents were to be each of the value of half a cent. 

The ratio between gold and silver, in all coins com- 
posed of those metals, was fixed at fifteen to one : in other 
words, fifteen pounds' weight of pure silver had the same 
legal value as one pound weight of pure gold. 

The standard established for gold coins of the United 
States was eleven parts fine to one part alloy. Accord- 
ingly, eleven parts in twelve of the entire weight of each 
coin was to consist of pure gold, and the other part of 
alloy. The alloy was to be composed of silver and copper, 
the proportion of the former metal not exceeding one- 
half. The proportion was to be regulated by the director 
of the mint, with the approbation of the President. 

The standard established for silver coins was 1,485 
parts fine, to 179 parts alloy. Accordingly, 1,485 parts in 
1,664 parts of the entire weight of each silver coin was to 

1 Dr. Linderman says that Hamilton, " in determining the quantity of 
pure silver for the dollar, did not take the lawful standard of the Spanish 
dollar of any particular issue, nor the average of the different issues, as 
his guide, but the actual average content of fine silver in the Spanish dol- 
lars then in circulation; which coin had for many years previously been, as 
it was then, the standard by which other moneys were generally measured, 
and in which contracts and money obligations in this country were dis- 
charged."— Money and Legal Tender, p. 25. 



1795.] COINAGE. . 161 

consist of pure silver, and the other 179 parts were to be 
of alloy composed wholly of copper. 

Individuals could bring gold and silver bullion, and 
have the same coined free of expense. The coins were 
made a legal tender. Penalties were prescribed for debas- 
ing them, and the money of account was to be expressed 
in dollars. 

The majority in favor of establishing the mint was very 
close, consisting only of four votes. 

Though adopting Hamilton's plan, the control of the 
mint was given to the State department, and remained 
there until Hamilton's retirement from the treasury office. 
One of his last official acts was to recommend placing 
it under the control of the treasury department, where it 
belonged. His suggestion was adopted. Its singular 
misplacement in the beginning was doubtless due to the 
wishes and influence of Jefferson. 

The business of coining had not been conducted long, 
before difficulties were encountered. One of these related 
to getting copper fit for coinage purposes. Another and 
still more serious difficulty related to the mint standard 
of the silver coin, which differed from the legal standard. 
By the law establishing the mint, it was provided that the 
silver coinage should contain 1,485 parts of fine silver 
to 179 parts of alloy, or ten ounces fourteen penny- 
weights and five grains of fine silver to one ounce five 
pennyweights and nineteen grains of alloy. Before com- 
mencing operations, it was supposed that the standard 
thus adopted was too low, and would debase the coin too 
much, causing it to wear black. The director of the 
mint, Henry William de Saussure, "presumed that an 



162 FINANCIAL HISTORY OF THE UNITED STATES. [1795. 

alteration would be made, which was recommended by its 
propriety and correctness." 

The alteration proposed was, that nine parts in ten 
should be fine silver, the other tenth alloy, or ten ounces 
sixteen pennyweights fine, to one ounce four penny- 
weights alloy, in the pound Troy. Supposing that such 
an alteration would be made, the coinage was begun in 
October, 1794. The following winter the matter was 
submitted to a committee of Congress, who reported con- 
cerning the propriety of making the alteration. The 
report was favorably considered in one house, but was not 
taken up in the other. In the mean time, the mint con- 
tinued to use the standard at first adopted as though 
Congress had made the alteration. Thus for a time the 
mint dollar contained greater value than the legal dollar, 
and was coined contrary to law, though in expectation of 
what the law would finally be. 1 Instead of changing the 
law, the fineness of the dollar was changed in October, 
1795, in conformity with the law already existing. In 
the mean time, silver coin had been coined of greater fine- 
ness than prescribed by law, which was an obvious loss to 
depositors. They received all the silver deposited, but 
fewer coins than they would have received had the law 
been observed. A depositor, discovering his loss, asked 
the government to pay him the difference, as it was caused 
wholly through the fault of its officers. A committee of 
Congress reported favorably on the claim , but Congress 
declined to act, fearing that all depositors would make 
similar claims, and thus subject the government to a 
new burden which it could not easily bear. Thus the 

1 Pickering's Report, Dec. 14, 1795, 1 Finance, p. 356. 



1796.] COINAGE. 163 

early history of the operations of the mint was peculiarly 
unfortunate. Had the legal standard been followed, the 
difficulty would have been averted ; but the departure 
therefrom was made on the weightiest grounds : and what 
Congress should have done was to adopt the standard 
proposed by the director of the mint. 1 

Other difficulties arose. Notwithstanding the efforts 
of those directing the mint to manage it with economy 
and efficiency, it proved to be a very expensive institu- 
tion. Not a few complained of the heavy outlay, which 
was neither foreseen nor expected. These complaints did 
not contain any charge of personal incapacity against the 
director himself. The heavy expenses incurred were the re- 
sult, chiefly, of the principles on which the mint was estab- 
lished. Not only did the original cost of the works, and 
the salaries of the officers, fall on the public, but also the 
whole expense of workmanship, with the alloy, mintage, 
and contingent losses. The want of an experimental 
knowledge of the business prevented the formation of an 
accurate estimate of the expense incurred in it ; while the 
undertaking had not gone far, before it was found that a 
melter and refiner were required. Besides, in the begin- 
ning, no charge could be made for the process of melting 
and refining to depositors : the whole expense, therefore, 
was borne by the government. Hence, in assaying one 
deposit of ninety-six thousand ounces of silver bullion, 
which proved to be twenty-four thousand ounces under 
standard, the refining of it cost the United States more 
than five hundred dollars; so that the depositor really 
gained that sum by bringing his bullion to the mint. This 

1 Foster's Report, May 19, 1798, 1 Finance, p. 588. 



164 FINANCIAL HISTORY OF THE UNITED STATES, [1796. 

operated very unequally among depositors. The citizen 
who brought bullion in such a debased state to the mint 
received as much coin for the standard silver therein as the 
one whose bullion had been previously refined equal to 
the standard, and therefore ready for coining, — an opera- 
tion conducted with little expense. Moreover, the lack 
of capital, either to purchase the precious metals in bul- 
lion, anticipate payments due to depositors, or coin for the 
public, was another cause of very considerable expendi- 
ture. Depending wholly on depositors for the precious 
metals, it became necessary, for their encouragement and 
satisfaction, to coin every deposit as soon as possible after 
it came to the treasury of the mint, to prevent it from 
remaining unproductive to the depositor. It was neces- 
sary for the clippings and grains to be melted and coined 
often three or four times for a single deposit. Thus the 
melting, refining, and coming of a deposit of two hundred 
ounces of silver, or twenty ounces of gold, would cost the 
public nearly as much as a thousand ounces of either, 
and a much greater proportional wastage. Had the bul- 
lion been purchased for the public at the market-price, and 
kept in the vaults until the collection of a large quantity 
for a single coinage, or had a capital of perhaps ten thou- 
sand dollars been furnished to the mint, to anticipate pay- 
ments to depositors, without resorting to an immediate 
coinage on every occasion, a very great saving would 
have been effected, not only with respect to wastage, but 
also in the expenditure of the materials and labor used in 
the process ; while no loss would have occurred to the 
United States, save the loan of the money for a short 
time. The gains to the government would have been ten- 



1796.] COINAGE. 165 

fold greater than the loss. Besides, such a practice would 
have had a tendency to fix the price of bullion, and indem- 
nify the public for a part of the expense of coinage. 1 

Such was the policy which it was highly expedient for 
the government to pursue. In 1797 a sum was appro- 
priated for the purchase of bullion; thus effecting the 
economies described, and rendering the operations of the 
mint more satisfactory to those desirous of having bullion 
coined into money. 2 

In 1795 3 there was other legislation respecting coinage. 
The treasurer of the mint was directed to retain two 
cents per ounce from every deposit of silver bullion below 
the standard for refining, and four cents per ounce from 
every deposit of gold bullion, unless it were so far below 
the standard as to require the operation of a test; in 
which case the treasurer was to retain six cents an ounce. 
Nor w'as he obliged to receive from any one a smaller 
deposit of silver bullion below the standard than two 
hundred ounces, nor of gold less than one-tenth that 
quantity. The officers of the mint were allowed to give 
a preference to gold and silver bullion deposited for 
coinage, conforming to the standard adopted by the gov- 
ernment. 4 The next year the law was changed, and 

i Pickering's Report, Dec. 20, 1796, 1 Finance, p. 473. 

2 Haven's Report, Feb. 13, 1797, 1 Finance, p. 494. 

3 March 3, 3 Cong., second session, chap. 47. 

4 Boudinot says, in his annual report of the mint (Jan. 1803), that the 
certificates for deposits were sold generally, as soon as given, to the banks 
in Philadelphia, at a fourth and a half per cent discount for the delay of 
coinage. "The banks," he adds, "are fond of keeping the coin in their 
vaults as part of their capitals, on account of the ease with which they are 
counted, without the trouble of weighing. The Bank of the United States, 
indeed, having a considerable part of their specie in this coin, have been 



166 FINANCIAL HISTORY OF THE UNITED STATES. [1796. 

thereafter enough was retained from every deposit of 
gold or silver bullion below the standard to pay for refin- 
ing it. 1 

At the close of the century there had been coined and 
issued from the mint 1696,530 in gold, $1,216,158.75 in 
silver, and in copper $50,111.42; or a total of less than 
$2,000,000. The expense of maintaining the establish- 
ment had been $213,336, though the treasury had been 
reimbursed by the payment of cents and half-cents to the 
amount of $48,041.42. The expense seemed so dispro- 
portionate to the benefits derived from the mint, that a 
committee of Congress recommended the closing of it, 
while many others shared in this opinion. 

In their report the committee declared that to furnish 
coin sufficient for a circulating medium throughout the 
United States would be impracticable, unless the capacity 
of the mint were greatly increased, and the custom of 
melting down the coin, and exporting it to foreign coun- 
tries, were prevented. This could be done in no way 
except by debasing the coin, — an expedient which could 
not be recommended. Even that might prove unavailing. 
Temporary causes, it was maintained, had hitherto fur- 
nished a great proportion of the bullion which had been 
coined ; and the only way to furnish a regular and cer- 
tain supply was to prohibit the circulation of foreign 
coins, thus converting them into bullion, which was the 



enabled, for some time past, to cancel their five-dollar notes, and to substi- 
tute the payment of half-eagles, by which our coins begin to be more gen- 
erally dispersed among the people." 

1 Act, May 27, 1796, 4 Cong., first session, chap. 33; April 24, 1800, 6 Cong., 
first session, chap. 34, sect. 2. 



1800.] COINAGE. 167 

idea of those who were in favor of establishing the mint. 
Beside the inconvenience attending the measure, the com- 
mittee believed it would not be effectual unless the trans- 
portation of bullion to the mint, and the replacement of 
its value in coin, were done at the risk and expense of 
the United States; for the difference in value between 
bullion and coin was so small, that no individual would 
be inclined to incur the risk and expense. Even cents 
and half-cents, it was believed, the mint could no longer 
furnish in sufficient quantity on the plan then existing. 
Such was the history, condition, and prospects of the 
mint at the close of a seven-years' experiment. 1 

The expediency of closing the mint continued to grow 
in the public mind. Public opinion became divided on 
the question of importing cents coined abroad by con- 
tract, and of having them made here in a similar manner. 
Boudinot, the director of the mint, feared that " an im- 
portation of cents complete would hazard the running of 
a flood of cents, lighter than allowed by law, into the 
United States, and the difficulty of preventing the evil 
would be very great." He declared it would be a greater 
security to government to have the coinage of copper 
executed here by contract, which might be done without 
expense to the Union, provided the government would 
take the cents. 2 

Individuals soon appeared who were ready to contract 
for coining them. Robert Scot made an offer to Gallatin 
for " the exclusive privilege of coining cents of the United 

1 Hillhouse's Report, March 14, 1800, 1 Finance, p. 632. 

2 Gallatin's Communication relating to Mint, April 2, 1802, 1 Finance, 
p. 744. 



/ 



168 FINANCIAL HISTORY OF THE UNITED STATES. [1809. 

States, as well from abroad as from within the realm," 
under such instructions as Congress might prescribe. He 
proposed to coin " free of all expense to the government, 
excepting that of receiving them when coined, and pay- 
ing the nominal amount." A proposition somewhat simi- 
lar had been received by Jefferson ten years before, from 
a person residing abroad, to coin them in Europe, and 
then transport them to this country. 1 

The law establishing the mint provided that it should 
be at the seat of government : consequently, when that 
was removed to Washington, the removal of the mint 
became necessary. The removal was delayed by law un- 
til 1801. For many ye/irs the question was unsettled; 
but finally, in 1828, Congress resolved that the mint 
should remain at Philadelphia. 

As the institution grew older its efficiency increased. 
The workmen acquired greater skill : they acquitted them- 
selves with strict integrity ; and for many years not a dol- 
lar was lost, except in a single instance. The culprit was 
detected by the officers of the mint, and he was prose- 
cuted and punished. In 1805 about eleven thousand dol- 
lars of the gold coined came from the county of Cabarras, 
North Carolina, — an event which at that day excited 
considerable interest. There was no difficulty in getting 
a sufficient quantity of the precious metals for coinage. 
They were furnished chiefly by the banks, especially by 
the Bank of the United States. 

The expense of the mint from its establishment to the 
close of 1809 was $387,414^524. There had been a profit, 
however, on the copper coinage, of 137,331.52, thus redu- 

1 Jefferson's Report on Copper Coinage, April 15, 1790, 1 Finance, p. 44. 



1797.] COINAGE. 169 

cing the net expense of running the mint to $ 350,082.77. 
The total value of the coinage to that period was $8,346,- 
146.21.1 

Before the mint began operations, all the coins in circu- 
lation were foreign. Several years must elapse before the 
mint could fill the channels of circulation with enough 
American coin to discard, without inconvenience and loss, 
the use of foreign coin. Hence Congress enacted, 2 that 
after the first day of July, 1793, foreign. gold and silver 
coins should pass current, and be a legal tender for the 
payment of all debts at certain specified rates. They 
could, however, be a legal tender for three years only 
from the time the mint began operations, except Spanish 
milled dollars and parts thereof. As these were of the 
same value as the dollar forming the monetary unit, there 
seemed to be no objection to continuing the use of them 
for the legal discharge of debts. When the three-years' 
limitation began to run, the event was announced by a 
proclamation of the President ; and all foreign coins 
received by the government were coined anew. 

On the twenty-second day of July, 1797, the President 
issued another proclamation, announcing, that, on the fif- 
teenth day of October following, foreign silver coins, with 
the single exception previously noted, would cease to be a 
legal tender. The president and directors of the Bank 
of the United States having indicated their consent to 
receive French crowns and other foreign silver coins as 
a legal tender at the current rates, the treasury depart- 
ment permitted foreign coins to be received in payment 

1 Gallatin's Report on Mint, Jan. 11, 1811, 2 Finance, p. 464. 

2 Act, Feb. 9, 1793, 2 Cong., second session, chap. 5. 



170 FINANCIAL HISTORY OF THE UNITED STATES. [1803. 

of the public revenues in the same way that they had 
previously been. To obviate inconveniences which might 
attend the negotiation of treasury drafts, the supervisors 
and collectors were requested to specify, in their weekly 
returns to the treasury department, the amount of foreign 
silver coins in their possession that were not a legal tender 
for the discharge of debts. They were also requested to 
inform the department whether these coins were current 
by common consent, in order to have such measures 
adopted for the collection of the revenue as might be 
necessary. 1 

When the three-years' limitation had expired, not much 
silver coin of the United States was found in circulation 
far from the mint, and still less in the interior parts of 
the country. Embarrassments occurred, and losses were 
sustained ; for a very considerable quantity of foreign sil- 
ver coins, besides Spanish milled dollars, were then in 
circulation. The time for the circulation of foreign gold 
coins did not expire until the end of July the following 
year. 2 

The limitation was extended from the 1st of January, 
1798, to the 3d of May, 1802. 3 But legislation on this 
subject was singularly defective. The legal effect of this 
last Act was, that for three years after 1802 no foreign 
coins whatever were a legal tender, and from the 3d of 
May, 1805, Spanish milled dollars and parts thereof only 
could be thus employed. 4 

The exportation of Spanish milled dollars was so large, 

1 Venable's Report on Foreign Coins, Dec. 11, 1797, 1 Finance, p. 503. 

2 Ibid. 3 Act, Feb. 1, 1798, 5 Cong., second session, chap. 11. 
4 Anderson's Report, March 26, 1806, 2 Finance, p. 197. 



1810.] COINAGE. 171 

and so many of the foreign coins remaining, as well as 
those issued by the United States, 1 were kept by the banks, 
that Congress determined once more to sanction the use 
of foreign coins. Another statute was passed, fixing the 
rates at which foreign gold and silver coins should " pass 
current as money within the United States." 2 In order 
to know the real standard value of foreign coins, they 
were to be assayed yearly ; and, from the information 
thus obtained, Congress could intelligently act in altering 
the rates, whenever necessary. This law was to continue 
in force for the customary period of three years, or until 
April 10, 1809. 

The year after the law expired an attempt was made 
to extend the limitation. Josiah Quincy remarked, in a 
report to Congress, that the denial to foreign coins of 
circulation, and of employment as a legal tender, had the 
combined effect of circumscribing the just sphere of mer- 
cantile action, and of encouraging the exportation of that 
species to which these privileges were denied. In the 
present circumstances of the United States, it seemed 
peculiarly unadvisable to permit any statute of prohibi- 
tions to continue which had a tendency to produce such 
an effect. The statute currency of the United States, 

1 Boudinot's Mint Report, January, 1805. Patterson remarked in the 
mint report at the close of 1807, "All foreign gold coins have now 
nearly ceased to circulate as a currency in the United States. Deposits 
of these are still, indeed, frequently made in our banks, but are thence 
either sent to the mint for coinage, or re-issued for the purpose of ex- 
portation" (see his Letter to Gallatin, June 29, 1809, to the same effect, 
2 Finance, p. 385). One reason why the Spanish coins continued to circu- 
late was their light weight (see Patterson's Letter to Gallatin, Dec. 19, 
1810, 2 Finance, p. 455). 

2 Act, April 10, 1806, 9 Cong., first session, chap. 22. 



172 FINANCIAL HISTORY OF THE UNITED STATES. [1810. 

which then consisted only of the coinage of the mint, 
and of Spanish milled dollars and parts of the same, 
was probably insufficient for the ordinary necessities of 
domestic exchange, and was certainly wholly inadequate 
to support any peculiar embarrassment of the circulating 
medium, which, in the event of the dissolution of the 
Bank of the United States, could not but be anticipated. 

In employing foreign coins once more, an interesting 
question was raised in regard to the use of Spanish gold 
coins. When used previously, they were estimated at 
four per cent above their intrinsic value : in other words, 
"the quantity of pure gold contained in twenty-seven 
grains and two-fifths of a grain of Spanish standard coin, 
instead of being equal in value to one hundred cents, 
the statute rate was only equal in value to about ninety- 
six cents." Should the old statute rate be established, 
or a new one, based upon its intrinsic value ? And, fur- 
ther, if a new rate should be established conformable to 
its intrinsic value, should the loss of four per cent falling 
on the present holders without any fault of theirs, but 
solely by reason of the erroneous estimate made by the 
government, be assumed by it, or be borne by them ? 

Quincy favored the establishing of a new rate of valua- 
tion ; and so did Gallatin, who declared, that, if the former 
Act were revived without any alteration, every person 
receiving those coins in payment would, in fact, be com- 
pelled to receive only ninety-six instead of one hundred 
cents on every dollar paid to him. The unavoidable effect 
of putting in circulation any one species of coin, at a rate 
higher than its known intrinsic value, was to invite its 
importation and increased circulation, and to drive out 



1810.] COINAGE. 173 



the other species. Every bank, if required to pay its 
notes in specie, would, in that case, pay with that species 
of coin; and the whole paper circulating medium must, 
after a time, depreciate in the same proportion. The 
only guard against the abuse and consequent deprecia- 
tion of bank-paper was a strict adherence to the prin- 
ciple that payment might at any time be demanded in 
specie rated at its intrinsic value. 

The second question was " of a more doubtful nature." 
Gallatin affirmed, that if it should be thought just for 
the community to bear the loss, instead of individuals, 
it would certainly be preferable to pay at once the dif- 
ference rather than knowingly to make the coins a legal 
tender at a higher rate than they were worth. If the 
government should determine to bear the loss, the most 
simple manner of effecting the object would be " to direct 
the mint to receive that species of gold for a short time 
at the former statute rate, the United States paying the 
difference." Quincy's opinion, however, was, that what- 
ever equitable considerations might exist for the govern- 
ment to pay the difference, the attempt to apply relief 
would prove inexpedient and impracticable ; for it was 
very apparent that there was no foundation for indem- 
nifying those who had received these coins subsequent 
to the 10th of April, 1809, when the law making them 
a legal tender expired. The cases in which present hold- 
ers had received them prior to that time were doubtless 
so very rare as to render any provision for their relief 
unnecessary. In respect of the banks, the specie circu- 
lated through them in such a manner that it would be 
hardly possible to distinguish the coins they had received 



174 FINANCIAL HISTORY OF.THE UNITED STATES. [1810. 

since the 10th of April, 1809, from those received before. 
Quincy said, that, in a few instances, the coins might be 
distinguished; "yet it seemed far better that in these 
the loss should remain where it had fallen than that the 
community should be exposed to the multiplied frauds 
and inconveniences which the attempt to indemnify upon 
any general principle would inevitably introduce." He 
might have added, too, that the inferior value of these 
coins to their legal valuation had been known for several 
years; so that most persons, and especially the banks, 
were not deceived, either by the government or by any 
one else, when they received them. 1 

This question of determining who should bear the loss 
on the Spanish gold coins recalls forcibly the experiment 
of the British Government in 1695, under the gifted direc- 
tion of Charles Montague, and the action of the Turkish 
Government under Mahomet IV., nearly thirty years 
earlier, accepting at their purported value the debased 
themins made by French merchants, and exchanged in 
vast quantities for Turkish goods among the unsuspect- 
ing Turks at Constantinople. But Congress did nothing; 
so that, for several years, foreign coins formed no part of 
the legal monetary circulation of the country. When the 
matter was next touched, the country was blazing in war 
with Great Britain. 

i Quincy's Report on Currency of Foreign Coins, Dec. 27, 1810, 2 Fi- 
nance, p. 456. 



1795.] HAMILTON'S ADMINISTKATION. 175 



CHAPTER IX. 

HAMILTON'S ADMINTSTKATION. 

Hamilton resigned the last day of January, 1795. Of 
all the departments of the government, the most impor- 
tant in the beginning was the treasury. The very exist- 
ence of national life depended on the successful solution 
of financial questions. How these were solved by Ham- 
ilton we have already seen. He opened the way for 
funding the national debt. He devised taxes, and regu- 
lated their mode of collection. He founded a national 
bank, the great importance of which was never fully 
realized until it ceased to exist. He established a mint, 
which, although blundering at first, soon proved the need 
of its existence. He created an admirable system of ac- 
counts. All these were parts of a great plan, boldly 
designed, and which admirably fulfilled what its author 
intended. He was the cyclopean builder, and his succes- 
sors did but little more than to fill in the interstices as 
they were discovered. Though parts no longer exist, 
because they are not needed, yet enough of the system 
still remains, like the mossy monuments of a great city, 
to bear witness to its former grandeur. 

In estimating his achievements, it must be remembered 
how strongly opposed he was in many of his measures. 
In some cases he failed entirely : in others, his measures 



176 FINANCIAL HISTORY OF THE UNITED STATES, [1795. 

came forth from Congress so marred that he could hardly 
recognize them as his own creation. Thus the bill finally 
adopted for funding the indebtedness of the government 
was a crude and patched measure, — a compromise be- 
tween many opposing minds. But by no simpler device 
could an agreement be reached. 

Another cause of opposition to Hamilton's measures was 
their centralizing tendency. It was clearly seen how the 
funding of the debts of individuals, and assuming those 
of the States, the establishment of a national bank, and 
all the corollary measures relating to the laying and col- 
lection of a revenue, strengthened the government enor- 
mously; and a formidable party arose in opposition to 
every measure having such a tendency. This opposition 
was cemented and led by Jefferson. Doubtless many 
opposed Hamilton, not because they believed he was 
wrong, but to destroy his influence. Nearly all the in- 
vestigations into his official conduct had their rise in 
this feeling. 1 A weaker man than Hamilton in the treas- 
ury department would have failed to convince Congress 
of the absolute necessity of enacting the measures which 
were necessary to rescue the government from speedy 
destruction. 

Hamilton won a higher distinction in the treasury de- 
partment than any successor is ever likely to attain. This 
was due, partly to his rare ability, and partly to the time 
in which he lived. There was a happy combination of 
man and circumstance, and the result was truly wonder- 
ful. Had he been in the treasury department during 
Crawford's time, doubtless he would not have signally 

i Gibbs's Adm., vol. i. p. 81. 



1793.] Hamilton's administration. 177 

distinguished himself, because there was no occasion for 
exhibiting any remarkable financial genius. 

Another cause contributed to Hamilton's success. He 
was the man in whom most of the financial knowledge 
of his own party was concentrated. The other members 
readily acknowledged him as their financial Moses, who 
was competent to lead the people out of darkness into the 
smiling day. No one disputed the leadership with him in 
his chosen field. On the other side there was no financial 
talent whatever until 1794, when Gallatin entered the 
House. During his short service in the Senate he did 
little beside call for a statement of the domestic debt. 
When he appeared in the other branch of Congress, he 
found that u the financial department," to use his own 
words, " was quite vacant " with respect to representation 
by his own party. This is why, having made himself com- 
plete master of the subject, he occupied that field almost 
exclusively, and was chosen financial leader by the Repub- 
lican party when they came into power. 1 

1 Gallatin left a fragmentary memorandum of his congressional service, 
in which he says, after entering the House, " My first step was to have a 
standing committee of ways and means appointed. That this should not 
have been sooner done, proves the existing bias in favor of increasing as 
far as possible the power of the executive branch. The next thing was to 
demonstrate that the expenditure had, till then, exceeded the income. 
The remedy proposed was economy. Economy means order and skill ; 
and, after having determined the proper and necessary objects of expense, 
the Legislature cannot enforce true economy otherwise than by making spe- 
cific appropriations. Even these must be made with due knowledge of the 
subject ; since, if carried too far, by too many subdivisions, they become 
injurious, if not impracticable. This subject has ever been a bone of 
contention between the legislative and executive branches in every repre- 
sentative government, and it is in reality the only proper and efficient legis- 
lative check on executive prodigality." — Adams's Life of Gallatin, p. 157. 



178 FINANCIAL HISTORY OF THE UNITED STATES. [1795. 

It is true, when Hamilton resigned, there had been no 
reduction of the national debt. But this was no fault of 
his, nor of any one. It was a gigantic task to organize 
the treasury department, and provide funds for paying 
the interest, in addition to the annual expenses of the 
government. The people were not accustomed to paying 
taxes, especially when laid and collected by a general 
government. The payment of them did not come easily. 
Moreover, the government was so unfortunate as to be- 
come involved in some heavy, unexpected expenditures, 
which no statesmanship could have prevented. These 
occurred at a time, too, when the government could ill 
afford to divert its funds from any other than its ordinary 
purposes. Keeping these facts before us, did not Hamil- 
ton accomplish as much in the way of discharging the 
public obligations as any person could have done ? 

No annual report was required of the secretary of the 
treasury until the opening of the new century. Had the 
law then passed been enacted earlier, Hamilton might 
have been spared much of the trouble to which he was 
subjected of making frequent reports. Yet it is true that 
some of these were demanded more to annoy him than to 
obtain information. He certainly thought so, and he had 
reasons for entertaining such an opinion. How these in- 
quiries interfered with his other duties, and how he was 
vexed by them, may be learned from his own writings. 
"The occupations necessarily and permanently incident 
to the office are at least sufficient fully to occupy the 
time and faculties of one man. The burden is seriously 
increased by the numerous private cares, — remnants of 
the late war, which, every session, are objects of particular 



1795.] HAMILTON'S ADMINISTRATION. 179 

reference by the two Houses of Congress. These accumu- 
lated occupations, again, have been interrupted in their 
due course by unexpected, desultory, and distressing calls 
for lengthy and complicated statements, — sometimes with 
a view to general information ; sometimes for the explana- 
tion of points which certain leading facts, witnessed by the 
provisions of the laws and by information previously com- 
municated, might have explained without those state- 
ments, or which were of a nature that did not seem to 
have demanded a laborious, critical, and suspicious inves- 
tigation, unless trhe officer was understood to have for- 
feited his title to a reasonable and common degree of 
confidence." 1 

It has been said that Hamilton borrowed many of his 
ideas from the English system of finance. Funding had 
long been known in the history of governments. But 
though the principle of funding was an old one, the prac- 
tical application of it by Hamilton was involved in enor- 
mous difficulties. The idea was a new one here ; and, 
while the general opposition to the adoption of the princi- 
ple was strong, the opposition to the practical application 
of it at every step was immensely heightened. 

So, too, the pledging of the revenues for loans was a 
new principle. To make credit immortal, he declared 
that every debt must be accompanied with the means of 
extinguishment. This principle he sought to apply in 
every instance. The only exception was that of the Al- 
gerine loan for one million dollars. When that was 
authorized, no revenues were pledged for its payment; 
and the failure of Congress to do so was the chief cause, 

i Letter to Senate, Feb. 22, 1794, Adams's Life of Gallatin, p. 116, note. 



180 FINANCIAL HISTORY OF THE UNITED STATES. [1795. 

Hamilton believed, why the money needed could not be 
obtained. 

Hamilton exerted a tremendous influence in his party, 
notwithstanding the efforts of jealous aspirants to pull 
him down. Of these, Jefferson and Madison were for 
a considerable period the most active. But there was a 
great difference between the modes of warfare adopted 
by them. Madison resorted to no secret or unfair means 
to undermine Hamilton ; while Jefferson never scrupled 
on the grounds of conscience or of honor to overthrow 
any one whom he thought stood in the way of his 
advancement, or that endangered the security of his 
position. 1 

Wolcott was appointed secretary of the treasury two 
days after Hamilton's resignation. He was a thorough 
believer in the financial views of Hamilton, and was per- 
mitted to remain long enough to develop the system 
already begun. Wolcott was not brilliant; but he was 
honest to the core, familiar with all the details of the 
treasury department, and his fitness for the place was not 
questioned by any one. Having always attended closely 
to his official duties, he had never found leisure to enter 
the arena of active politics: perhaps such an inclination 
had never been aroused. He brought no political strength, 
therefore, into the cabinet. On the other hand, he was 
saved from many attacks like those which Hamilton had 
been obliged to face, — a gain to himself, his party, and 
his country. Had he been more prominent as a politician, 
doubtless he would have been oftener assailed. As he 
was seen to be purely a business official, a general disposi- 

1 Hamilton's Hist, of Repub., vol. v. pp. 129-135. 



1795.] HAMILTON'S ADMINISTRATION. 181 

tion was shown to suffer him to manage the affairs of his 
office in peace. 

The administration of the treasury department by Wol- 
cott was tame compared with that of his gifted prede- 
cessor. When Hamilton began, chaos existed throughout 
the entire region of public finance. Every thing was to 
be done, and the work required the very highest order 
of ability. But Hamilton was equal to the task. He 
truly marked a new renaissance in finance. Such a condi- 
tion of things is never likely to return. It was the one 
occasion on which, if the man appeared equal to it, he 
was sure to win a fame as permanent as the existence of 
the nation for which the work should be done. Probably 
it was the desire to see his system as nearly completed as 
possible which led him to remain in office for a consider- 
able period after the place had become uncongenial to 
him. It is true that he had the confidence of Wash- 
ington to the end, and on every side there were strong 
friends; but he had numerous enemies, who were both 
watchful and harmful, and they never failed to throw a 
dart at him whenever they saw him exposed. On the last 
day of January, 1795, he retired from office, having ac- 
complished a prodigious work, on which later generations 
look with admiring wonder. 1 

1 He had just passed his thirty-eighth year. — Hist, of Repub., vol. vi. 
p. 191. 



182 FINANCIAL HISTORY OF THE UNITED STATES. [1789. 



CHAPTER X. 

APPROPRIATION BILLS, HOW FORMED AND CONSTRUED. 

To enable Congress to form an intelligent judgment of 
the amount of revenue annually needed, the secretary 
of the treasury has always been required to furnish esti- 
mates of the probable expenditures of the government. 
These are furnished at an early day of the session, and 
form the basis of appropriations. 

At first the estimates were very general, and often 
without explanations and suggestions, — a mere naked 
estimate of the amount needed for the army, navy, and 
other departments. After a few years the appropriations 
grew more specific. When Gallatin became a member 
of the House, in 1794, he labored earnestly to make them 
still more minute, and not without success. Wolcott, 
who succeeded Hamilton in the treasury department, did 
not like the requirement : he thought it was established, 
not in the interest of good government, but in opposition 
to it. He wrote to Hamilton, " The management of the 
treasury business becomes more and more difficult. The 
Legislature will not pass laws in gross : their appro- 
priations are minute. Gallatin, to whom they yield, is 
evidently intending to break down this department by 
charging it with impracticable details." Yet Gallatin 
was trying to do no such thing. It is impossible to be 



1793.] APPEOPEIATION BILLS. 183 

too minute and careful in making public appropriations. 
The more closely these measures are scanned, the less 
danger there is of voting money for foolish or dishonest 
purposes. Wolcott was an honest servant, but he did 
not see the danger of contiuuing the plan of appropriat- 
ing money first adopted. Appropriation bills, however 
specific, always have unguarded places through which the 
public funds slip, and are wasted. 

Until the advent of Gallatin in the treasury depart- 
ment, Congress specified the revenues from which appro- 
priations should be paid. In some cases several funds 
were designated for that purpose. But Gallatin changed 
the custom, and, from the beginning of his administra- 
tion, there was only a general reference to the source 
whence appropriations should be drawn. 

In 1792 the general appropriation bill was far more 
elaborate than any former one. The next year a new 
feature was added : the President was authorized to bor- 
row money in anticipation of the revenue. Appropria- 
tions were made for special purposes at every session of 
Congress ; and generally, near the close, a bill was passed 
containing all the appropriations not included in previous 
enactments. For many years the custom was observed 
of passing the general bill early in the session, — a cus- 
tom, which, if renewed, would be attended with good 
results. The bill would be put more prominently before 
the public eye : it would be examined with greater care, 
and there would be less danger of voting money for 
corrupt schemes. 

Two years later, appropriations for military and Indian 
purposes were put in a separate bill, and were kept there 



184 FINANCIAL HISTORY OF THE UNITED STATES. [1793. 

for many years. It is true, that in the general bill, as 
well as in the special one, and also in the miscellaneous 
bill, might be found appropriations for the army and for 
the Indians: nevertheless, the custom had been begun 
of framing what may be regarded as the second regular 
appropriation bill. For the next three years the appro- 
priations for the army, navy, and Indians, were included 
in a single annual bill , but in 1798 the navy department 
was created, and for that year the appropriations for 
the navy were mingled with others of a miscellaneous 
nature. The next year, 1799, the third regular annual 
appropriation bill was passed, making appropriations for 
the navy department. These were the only regular ap- 
propriation bills until 1828, when a fourth bill, appropri- 
ating money for the construction of fortifications, was 
passed, and annually thereafter. The first appropriation 
bill for deficiencies was passed in 1804. 

Beside the special and general appropriation bills, a 
very large amount of money was expended annually by 
virtue of permanent appropriations for salaries, interest, 
and the like. For several }^ears there was a standing ap- 
propriation of forty thousand dollars for defraying the 
expenses of foreign intercourse : then the law was re- 
pealed, and the appropriation for this purpose was included 
in the general bill. 

Having described the mode of making appropriations, 
let us now trace the application of the money appropri- 
ated. It was drawn from the treasury by virtue of war- 
rants signed by the secretary, and countersigned by the 
comptroller, and was paid to the officers or agents to whom 
the same was due, or who were intrusted with its appli- 



1794.] APPROPRIATION BILLS. 185 

cation ; or, if belonging to the war or navy departments, 
it was placed ; n the hands of the treasurer as agent for 
those departments, who disbursed it on warrants drawn by 
the secretary of war or of the navy, and countersigned 
by the war or navy accountant. 1 

In some instances, however, money was paid from the 
treasury on a simple letter addressed by the secretary of 
the treasury to the treasurer. Such payments were after- 
ward covered by warrants. Sometimes money was in- 
formally paid by the treasurer, or advanced by the Bank 
of the United States, before an appropriation had been 
made by law to cover the expense for which the money 
was advanced. In every case like this the payment was 
authorized by a subsequent appropriation. 

It may also be noted, that occasionally money was ad- 
vanced by the collectors of the revenue from funds in 
their possession before they had been drawn into the 
treasury. The two principal objects of expenditure to 
which this exception to the general rule applied, were a 
portion of the expenses incident to the courts of the 
United States, which were advanced by the collectors 
of the customs to the marshals, and those incident to the 
ordinary support and repair of lighthouses, buoys, and 
piers, which were generally defrayed in the same manner. 
In those cases, warrants were issued as though the money 
expended had been previously drawn into the treasury, 
and had been afterward paid to the revenue officers to 
enable them to defray the expense. 

Although the construction given by the treasury de- 

1 Nicholson's Report on the Application of Public Money, April 29, 
1802, 1 Finance, p. 752. 



186 FINANCIAL HISTORY OF THE UNITED STATES. [1795. 

partment to appropriation laws was not always uniform, 
yet, for several years during the earlier history of the 
government, all money appropriated for the annual sup- 
port of the army and navy respectively was regarded as 
one general appropriation for each of those two objects, 
and was indiscriminately applied to every distinct object 
of expenditure embraced under those two general heads. 

The appropriations for the Indian department and for 
fortifications were generally blended with those of the 
war department. But there were certain appropriations 
relating to the army and navy which were regarded as 
wholly separated from the rest. These related to the pur- 
chase of cannon, arms, ammunition, and military stores, 
to the leasing of foundries and armories, to the forti- 
fications of certain harbors, to the purchase of land with 
growing timber, to the erection of two docks, and to the 
purchase and building of several vessels. Likewise, the 
appropriations for the public debt, the civil department, 
the mint, lighthouses, census, etc., and for foreign ex- 
penses, were considered applicable only to the object for 
which they were appropriated. 

The impolicy of continuing appropriations in force for 
an indefinite period induced Congress to enact that any 
appropriations, except certain permanent ones, remaining 
unexpended for more than two years after the expiration 
of the year in which they were granted, should cease, and 
the amount unexpended be carried to an account on the 
books of the treasury called the "surplus fund/' By 
the operation of this law, no ordinary appropriation sur- 
vived the specified period of two years ; and, notwith- 
standing the formal designation of the particular account 



1792.] APPROPRIATION BILLS. 187 

in which the entry was made, the money was disengaged, 
and became an undistinguishable part cf the public treas- 
ure, and subject to the future disposition of Congress. 1 

Hamilton remarked, in one of his reports, that " occa- 
sions occur from time to time, which fall under no stated 
head of expenditure, for which provision, in some mode 
or other, is necessary." He instanced the apprehension 
and punishment of several counterfeiters of the govern- 
ment securities. He inquired whether the appropriation 
of a moderate sum, to be spent by the order of the Presi- 
dent, would not be judicious. Such a thing has been 
done, but Congress can never exercise too much caution 
in appropriating money in this manner. Good governing 
requires the utmost particularity and publicity in granting 
appropriations, and in expending them. 

When the government had been in operation a little 
longer than ten years, there was an investigation con- 
cerning the application of the public money. In several 
cases it was discovered that it had been paid without 
legal authority : in others, it had been misapplied. There 
were two requisites to justify the legal expenditure of 
public money, — first, an authorization of the expendi- 
ture ; second, an appropriation to cover the expense. 
These rules had not been observed in all cases, especially 
in the war and navy departments. Indeed, it was be- 
lieved that " considerable sums of public money had been 
greatly misapplied, and that much expense had been in- 
curred without any legal authority." Wolcott published 
an elaborate defence of the action of the treasury depart- 
ment, in which he explained all the transactions contained 

1 Dallas's Annual Report, December, 1815. 



188 FINANCIAL HISTORY OF THE UNITED STATES. [1802. 

in the report of the committee of investigation. He jus- 
tified some of the expenditures by appealing to " estab- 
lished usage," which was u equivalent to a written law." 1 

A single illustration may be given to show how loosely 
the public funds were disbursed in those days. A law 
had been passed in 1793 authorizing the secretary of state 
to make simply a certificate of the amount of money 
expended in certain ways known as " secret services," 
which were to be taken as vouchers for the expenditure 
of the sums represented. Without legal authority this 
mode of certifying to expenditures was extended to the 
war and navy departments. Subsequently the custom 
was condemned by a committee of Congress, who enter- 
tained " no doubt as to its legality." 

The same committee remarked that appropriations for 
the contingencies of the war and navy departments were 
at all times liable to abuses, not only from the very large 
sums usually appropriated therefor, but also from the im- 
practicability of specifying by law the precise objects to 
which such sums were applicable. The remedy they 
suggested was the publication of all accounts of this 
kind. Nor could any possible inconvenience be discov- 
ered in making such a disclosure, since there was no 
necessity nor propriety for applying the principle of 
secret-service money to either department. 

Although no reformatory legislation was generated by 

1 Address to the People of the United States, p. 6. Wolcott justly com- 
plained of the way in which the committee performed their work ; for the 
majority conducted the investigation, and said nothing to the minority 
until their report was ready to be presented to the House (Ibid., p. 1). 
Such a method of investigation reflects no credit on those who took part 
in it, whatever may be the facts and conclusions contained in their report. 



1808.] APPROPRIATION BILLS. 189 

f 

this investigation, the several departments improved their 
modes of doing business. Thereafter every warrant drawn 
for money specified the particular appropriation to which 
it would be charged. Some exceptions were made in the 
navy department respecting contingent expenses incurred 
at distant places. 1 Many defects, though, which experi- 
ence had clearly brought to light, still remained without 
a remedy. 

In 1808 the secretaries of the treasury and navy and 
of war, and the postmaster-general, were required to lay 
before Congress an annual statement of all the contracts 
made in their respective departments, and all the particu- 
lars relating thereto; and by the same Act members of 
Congress were prohibited from becoming interested in any 
contract to which the government was a party. 2 The next 
year Gallatin laid a communication before the House, point- 
ing out what reforms were needed in making advances, and 
accounting for public money in the war and navy depart- 
ments. Congress then, for the first time, bestowed that 
attention to the subject which its importance demanded. 

It was enacted that every warrant drawn by the secre- 
tary of the treasury, or of war, or of the navy, on the 
treasurer, should specify the particular appropriation to 
which it should be charged. The officers, agents, or other 
persons who received public money, were required to ren- 
der accounts of its application ; and the secretary of war 
and of the navy were required to report to Congress annu- 
ally an account of the expenditure and application of all 



i Secretary of the Navy's Letter, in Giles's Report, Feb. 25, 1809, 2 Fi- 
nance, p. 348. 

2 Act, April 21, 1808, 10 Cong., first session, chap. 48. 



199 FINANCIAL HISTORY OF THE UNITED STATES. [1809. 

money drawn from the treasury prior to the end of Septem- 
ber preceding. Moreover, the law provided that the ap- 
propriations for each branch of expenditure in the several 
departments should be solely applied to the objects for 
which they were respectively appropriated, and to no other. 
The law contained the following noteworthy provision : 
During the recess. of Congress the President was author- 
ized, on the application of the secretary of the proper 
department, to direct, if in his opinion the necessity of the 
public service required such an expenditure, that a portion 
of the money appropriated for a particular branch of ex- 
penditure in that department be applied to another branch 
in the same department, in which case a special account 
of the money thus transferred, and of its application, was 
to be laid before Congress early the next session. 

Congress provided, also, for the settlement of accounts : 
and all that remained unsettled for a period of three years 
were to be reported annually during the first week in 
every session. The mode of appointing persons to make 
contracts was regulated ; and they were directed to make 
their purchases, either openly, or by previously advertising 
for proposals. They were required to render an annual 
statement of their doings , and several other provisions 
were added for the more efficient discharge of the public 
business in making purchases, and accounting for the public 
money. 1 Thus, in the twenty years that had elapsed since 
the formation of the government, there was a great advance 
in this direction. But the government moved very slowly 
to suffer so long a period to pass before introducing the 
reforms the need of which had long been clearly seen. 

1 Act, March 3, 1809, 10 Cong., second session, chap. 28. 



1789.] APPROPRIATIONS AND EXPENDITURES. 191 



CHAPTER XI. 

APPROPRIATIONS AND EXPENDITURES. 
1789-1800. 

Haying shown how appropriation bills were formed 
during the earlier days of the government, we have already 
entered a very extended field, which is well worth careful 
cultivation. 

On what grounds did the secretary of the treasury base 
his estimate of probable receipts and expenditures, and 
how did the actual receipts and expenditures vary there- 
from, and what were the causes of the variation ? Again : 
how wisely or unwisely were the expenditures made? 
Were the revenues drawn from the best sources, and col- 
lected in the most economical and judicious ways? If 
not, how could Congress have ordered with greater wis- 
dom? — these and many more equally important ques- 
tions lie in the domain we are about to explore. 

The constitution has provided that "no money shall 
be drawn from the treasury but in consequence of appro- 
priations made by law." The first appropriation bill was 
passed in 1789, 1 and provided for the following 3 car. Aa 
the treasury department was not then created, a com- 
mittee were appointed to make an estimate of the expendi- 
ture and revenue of the government. Gerry, who had 

1 Act, Sept. 29, 1 Cong., first session, chap. 23. 



192 FINANCIAL HISTORY OF THE UNITED STATES. [1789. 

served for several years as a member of the board of 
treasury under the Confederation, was chairman. 

The income from imports was estimated at $1,467,- 
086.03. This sum was insufficient to pay more than 
a small portion of the estimated expenditures. Conse- 
quently, no appropriations were made for interest, or for 
paying any portion of the foreign or domestic debt. The 
payment of interest on the latter was deferred : that due 
on the foreign debt was paid from the proceeds of loans 
negotiated abroad. 1 

The entire appropriation consisted of the following 
items : " a sum not exceeding $216,000, for defraying the 
expenses of the civil list under the late and present gov- 
ernment ; a sum not exceeding $137,000, for paying the 
expenses of the department of war ; a sum not exceeding 
$190,000, for discharging warrants issued by the late board 
of treasury, and remaining unsatisfied ; and a sum not 
exceeding $96,000, for paying the pensions of invalids.'' 
How great the contrast between this bill and the appro- 
priation bills now annually passed ! 2 The first special 
appropriation was $20,000 for defraying the expense of 
negotiating with the Indians. 3 

The revenues were derived from imports, and the sale 
of public lands. Afterward internal taxes were added ; 
and, lastly, the government resorted to direct taxation. 
Additional resources were derived from loans ; but these, 

i Gerry's Reports on Estimates, July 9, Aug. 27, Sept. 24, 1789, 1 Finance, 
p. 11. Baldwin's Report, May 22, 1794. 

2 In the appropriation bill of the next year was the sum of $10,000 for 
contingent expenses, which the President was authorized to draw. Act, 
March 26, 1790, 1 Cong., second session, chap. 4. 

s Aug. 20, 1789. 



1794.] APPROPRIATIONS AND EXPENDITURES. 193 

of course, were repaid : the money, therefore, obtained in 
this way, was simply in anticipation of the public reve- 
nues. 

Heavy as was the burden of sustaining the new govern- 
ment, it had not been loug in operation before an increase 
was inevitable. A war broke out on the frontier with the 
Indians, which required fresh outlays of money. Then 
the whiskey insurrection occurred, which cost the govern- 
ment a considerable sum. Not long afterward the Alge- 
rine difficulty arose. These exigencies were unavoidable, 
and appropriations were passed therefor without much con- 
tention. The Republicans, it is true, sought to acquire 
political capital from the settlement with Algeria , but 
they did not succeed in their endeavor. 

The appropriation for creating a navy was the first that 
caused severe party clashing. American commerce was 
subjected to so many insults in the Mediterranean, that 
the Federalists favored the formation of a navy to resist 
all aggressions. In 1794 our affairs with Great Britain 
were threatening. The Republicans proposed to purchase 
peace with Algiers with money, rather than to build a 
navy, and win peace with a sword. In regard to the 
troubles with England, the Republicans did nothing to 
heal them. Finally it was voted to begin the construc- 
tion of a few frigates, to be discontinued as soon as peace 
should be declared with Algeria. As the expenditure 
required additional revenue, parties antagonized over the 
mode of raising it. The Republicans favored the levy 
of a direct tax ; the Federalists, the increase of internal 
taxes. The object of the Republicans in advocating a 
direct tax was to provoke enough opposition to the Fed- 



194 FINANCIAL HISTORY OF THE UNITED STATES. [1795. 

eralists to drive them from power. 1 In 1796, no peace 
having been effected, authority was granted for building 
three frigates. These were finished, — the " Constitu- 
tion," "Constellation," and the "United States." The 
intensity of the Republican opposition to this policy did 
not abate. 2 

With Gallatin the question was, whether the creation 
of a navy should be postponed to the payment of the 
public debt, or whether the opposite policy should pre- 
vail. He was a stout adherent of the former view. In 
the session of 1795-96, when appropriations for the three 
frigates just mentioned were wanted, he said, " I am sensi- 
ble that an opinion of our strength will operate to a certain 
degree on other nations, but I think a real addition of 
strength will go farther in defending us than mere opin- 
ion. If the sums to be expended to build and maintain 
the frigates were applied to paying a part of our national 
debt, the payment would make us more respectable in the 
eyes of foreign nations than all the frigates we can build. 
To spend money unnecessarily at present will diminish 
our future resources, and, instead of enabling us, will 
perhaps render it more difficult for us, to build a navy 
some years hence. . . . Perhaps I may be asked if we 
are then to be left without protection. I think there are 
means of protection which arise from our peculiar situa- 
tion, and that we ought not to borrow institutions from 
other nations, for which we are not fit. If our commerce 
has increased, notwithstanding its want of protection ; if 
we have a greater number of seamen than any other 
nation except England, — this, I think, points out the way 

i Gibbs's Adm., vol. i. pfT. 122, 141. 2 Ibid., p. 349. 



1798.] APPROPRIATIONS AND EXPENDITURES. 195 

in which commerce ought to be protected. The fact is, 
that our only mode of warfare against European nations 
at sea is by putting our seamen on board privateers, and 
covering the sea with them : these would annoy and dis- 
tress them more than any other mode of defence we can 
adopt." 1 

Such was the ground taken by Gallatin and his party ; 
and were they not essentially right? Giving credit to the 
glorious victories won by the three frigates then con- 
constructed in the war of 1812, what struck terror into 
the British heart was not the loss of a few men-of-war, 
but the depredations committed on her commerce by 
American privateers. Gallatin clearly saw that the 
United States was isolated from the nations of the Old 
World, and that the ocean could be surpassed, in the 
completeness of its protection, only by a sea of fire. 2 

No sooner had the Algerine difficulty been settled, and 
affairs with Great Britain adjusted, than the nation was 
agitated, not by a celestial visitant, but by our late be- 
loved French ally. Her attitude was so threatening, that 
renewed preparations for war became necessary. The 
building of war-ships was continued, the Republicans 
maintaining their opposition. Fortifications were con- 
structed, and troops were enlisted. A navy department 
was now created. But how were the expenses to be 
paid ? The Committee of Ways and Means requested the 
secretary of the treasury to state the amount that would 
probably be required for these purposes, and the probabil- 
ity of obtaining a permanent loan of 15,000,000 in irre- 
deemable stock, based on new revenues, with an efficient 

i Adams's Life of Gallatin, p. 170.- 2 ib^., pp . 170, 217. 



■ 



196 FINANCIAL HISTORY OF THE UNITED STATES. [1798. 

sinking-fund. Wolcott estimated a decline of $500,000 
in import duties in consequence of spoliations and stop- 
pages of commerce; but the internal revenues, he be- 
lieved, would exceed by $125,000 those of the preceding 
year, and $200,000 were allowed for stamp-duties. Nor 
did he doubt that the Bank of the United States would 
consent to continue their loans, and that funds could be 
obtained in anticipation of any solid revenues that might 
be established. He was emphatic, however, in declaring, 
that, to obtain money on reasonable terms, means must 
be provided for its reimbursement. 1 

The committee thought there would be a surplus 
revenue of $1,085,437.45, which, if not otherwise appro- 
priated, would be applied in reducing the public debt. 



1 Gibbs's Adm., vol. ii. pp. 64, 65. Wolcott wrote to the Committee of 
"Ways and Means, " It is not easy to form a certain opinion of the sum 
which can be immediately obtained on permanent loans, nor of the ex- 
pense which will attend them. The United States are unquestionably 
entitled to credit on the most advantageous terms: the instalments in Hol- 
land, which became due prior to the present year, have been discharged; 
effectual remittances for the sums which will be payable before December 
next have been assured; the sums of stock which are offered for sale are 
not considerable; there is no ground for distrusting the public ability or 
good faith; the present prices of stock are not considered as indications of 
distrust, but of the high value of money at the present time. Assurances 
have been received, from wealthy and influential men, that they will assist 
the United States with loans on reasonable terms. On these grounds, I 
conceive myself justifiable in expressing an opinion that the public credit 
will afford resources adequate to any exigency which can be reasonably 
contemplated." But to insure the success of such loans, and especially to 
guard against a too common abuse of the system, Wolcott declared that it 
was of the utmost importance to establish competent funds for the reim- 
bursement, in a reasonable time, of any sum that might be borrowed. 
The provision of a sinking-fund, such as the committee had suggested in 
their letter to him, he considered an indispensable requisite. 



1798.] APPROPRIATIONS AND EXPENDITURES. 197 

The sum they proposed to divert toward defraying the 
extraordinary war expenditures, which were estimated at 
$ 2482,14s. 1 To meet the deficiency, and to pay two in- 
stalments of the debt due to the United-States bank for 
stock, and the interest and extinguishing annuity of that 
portion of the public stock which became payable after 
1801, a direct tax of $2,000,000 was laid. In anticipation 
of the amount that would be raised in this way, the Presi- 
dent was authorized to borrow $2,000,000, beside $5,000,- 
000 more, on the best terms possible. The stock was to 
be reimbursed in fifteen years. The surplus of the im- 
port and tonnage duties was pledged for the payment of 
the interest and principal, as well as new revenues, if 
these were not sufficient. 

Another Act was passed, June 30, 1798, for an additional 
armament to protect trade ; and the President was empow- 
ered to purchase a number of vessels, or contract for build- 
ing them. Six-per-cent stock was to be issued to pay for 
them, payable at the pleasure of the government. Several 
vessels were obtained by this legislation, and the next year 
certificates to the amount of $711,700 were issued. This 
stock was subsequently known as the navy six-per-cents. 

With increasing expenditures, and congressional neg- 
lect to provide for paying them, the credit of the govern- 
ment weakened. There was, too, a sharper demand for 
money. 2 But the government must borrow, whatever the 
price might be. As Wolcott could not get it for less 
than eight per cent, he issued a stock bearing that rate of 

1 Harper's Report on Additional Revenues, May 1, 1798, 1 Finance, 
p. 579. 

2 Gibbs's Adm., vol. ii. p. 164. 



198 FINANCIAL HISTOltY OF THE UNITED STATES. [1799. 

interest, payable quarterly. The stock was irredeemable 
for five years, but, after that time, whenever the govern- 
ment desired. Wolcott regarded as a maxim of finance, 
that it was better to borrow the sum required at par, for 
a higher rate of interest, than for a lower one with a 
deduction from the principal. 

In January, 1799, the loan was filled; 1 but the rate 
paid caused a loud outcry by the Republican party. It 
formed the groundwork of much criticism, and was one 
of the causes which contributed to the downfall of the 
Federalists. Yet it is very doubtful if money could 
have been borrowed at a much lower rate. Wolcott 
wrote in December, 1798, to Hamilton, " The result of 
all the inquiries which I have been able to make, is, that 
a small sum might be raised by the gradual sale of seven 
and a half per cent stock at par, but that there can be 
no certainty that a loan would immediately be filled for 

1 Stephen Higginson, a prominent "banker of Boston, wrote to "Wol- 
cott (Feb. 14, 1799), "Your proposals for a loan have been as well received 
here as I expected. A much larger sum than five millions might have 
been obtained, had it been wanted, and the existing laws authorized its 
being extended. At least such is the present appearance, judging from 
the eagerness of people here to subscribe, and what we are informed as to 
the disposition of people in New York and Philadelphia, etc. I am, how- 
ever, at a loss to account for the ardor discovered in people to become 
subscribers; for the new loan will not prove more beneficial than the six 
per cents at the highest price asked for them. . . . Patriotism, or a desire 
to aid government by showing both an ability and disposition to furnish 
the funds wanted for public purposes, has an influence with many; but I 
suspect that the brokers and speculators in stocks have contributed much 
to excite that disposition, expecting to make a profit on the shares they 
may take in the loan by selling out early to those who may not succeed in 
getting so much invested in it as they now wish for." — Gibbs's Adm., vol. 
ii. p. 179. 



1800.] APPROPRIATIONS AND EXPENDITURES. 199 

the sum we want under eight per cent." * Within five 
years the same rate was again paid for money, including 
the exchange too, when payable abroad. 2 

The loan, therefore, was secured, and formed a part 
of the permanent debt. The navy six-per-cent loan also 
appeared in the same list after the year 1800. 

Whether the policy of the Federal party in making 
expenditures for creating an army and navy to resist 
foreign aggression was the true one, as opposed to that 
of the Republicans, who put the payment of the public 
debt before it, is a question concerning which much may 
be said on both sides. It was the first sharp point of 
divergence between the two parties. 

The next year the public expenditures were estimated 
at $15,393,024.11 ; while the estimate of revenues, includ- 
ing money in the treasury, was placed no higher than 
$ 10,30 1,258.51. The estimated deficiency, therefore, was 
$5,091,765.60. Though the internal revenues had in- 
creased, the duties on imports and tonnage had dimin- 
ished, while a larger expenditure was required to prepare 
the country for war. It was proposed to meet the defi- 
ciency by reducing the expenses in the navy and army 
departments $1,600,000, and by a new loan of $3,500,000. 
It was not necessary to borrow the whole amount, for the 
war-cloud rolled away. The same rate of interest was 
offered, but a premium was asked. The highest rate of 
interest asked by lenders was eight per cent, and no sales 
were made below five per cent. 3 Such were the extraor- 
dinary expenditures occasioned by the conduct of France. 

i Dec. 21, 1798, Gibbs's Adni., vol. ii. p. 178. 2 ibid., pp. 242-244. 
a See Reports, 1 Finance, pp. 626, 643, 692. 



200 FINANCIAL HISTORY OF THE UNITED STATES. [1800. 

Happily, peace was now so fully assured, that no unusual 
military expenditures were incurred for more than ten 
years. 

Wolcott resolved to resign before the close of the year ; 
and, when he announced his resignation to the House, he 
requested an investigation of the affairs of his depart- 
ment. He had held the office of secretary of the treas- 
ury during a considerable portion of Washington's second 
term, and nearly the whole of Adams's ; and he longed to 
retire, especially since his relations with the President 
were no longer very agreeable. Wolcott had retained his 
portfolio longer than any other member of the President's 
cabinet ; but he, too, now wished to be relieved. To 
his letter announcing his intention of resigning, Adams 
made a courteous and dignified reply ; and after Wolcott 
retired, at the close of the year, Dexter, the secretary of 
war, administered the office during the sixty days remain- 
ing of the President's term. 

A committee, as Wolcott had requested, faithfully 
investigated the affairs of his department. The history 
of Wolcott 's negotiation of loans was traced, beside every 
other phase of his official life. The report was unani- 
mous, and bore an honorable and gratifying testimony to 
the merits of Wolcott's public labors. The committee, 
in closing, expressed their opinion that the business of the 
treasury department had been conducted with regularity, 
fidelity, and economy ; that the disbursements of money 
had always been legally made ; that every attention con- 
sistent with the nature of the business had been bestowed 
in removing delinquents from office, in compelling them 
to account, in securing moneys due from them, and in 



1800.] APPROPRIATIONS AND EXPENDITURES. 201 

preventing an improper and unreasonable accumulation 
in the hands of public agents ; that the loans had been 
procured upon the most advantageous terms, and the 
most eligible modes of remittance to Europe had been 
devised ; and, generally, that the financial concerns of the 
country had been left by him in good order and prosperity. 1 

The loss arising from the delinquency of those con- 
cerned in the collection of the revenue from duties on 
imports and tonnage for the six years of Wolcott's admin- 
istration did Dot exceed a hundred thousand dollars, — less 
than one-seventh of one per cent of the whole amount 
collected. In the collection of the internal revenue the 
loss was somewhat greater, which was attributed partly 
to the novelty of the system. This loss was estimated at 
fifteen thousand dollars. 

On the 8th of November a fire occurred in the war 
department, and two months afterward another broke 
out in the department of the treasury. Furious attacks 
were made on the Federal officers ; nor was Wolcott 
spared. There was an investigation ; but no evidence 
whatever was adduced that Wolcott, or any other official, 
had been guilty of negligence or misconduct in regard to 
these occurrences. All the most valuable accounts and 
papers in the treasury office were saved, and the govern- 
ment sustained no severe loss from these events. 

The work of contriving the financial machinery of the 
government, and of starting it, had been finished. The 
public debt had been funded, and efficient steps taken for 
paying it at maturity. The national bank was in suc- 
cessful operation. Internal taxes were laid. The system 

i Otis's Report, Jan. 28, 1801, 1 Finance, p. G90. 



202 FINANCIAL HISTORY OF THE UNITED STATES. [1800. 

of direct taxation was begun under Wolcott, who did 
much toward creating and executing it. He was success- 
ful in providing for all the public expenditures, including 
the borrowing of money needed to prepare the country 
for war. He administered the affairs of the treasury 
department at a trying time. The opposition were will- 
ing to incur debts, but were very slow in raising money 
to pay them. Under such circumstances, the administra- 
tion of the finances was neither an easy nor a cheerful 
task. What man could have acquitted himself better 
than Wolcott ? 



1800.1 APPROPRIATIONS AND EXPENDITURES. 208 



CHAPTER XII. 

APPROPRIATIONS AND EXPENDITURES. 
1800-1812. 

With the incoming of the century there was a new 
President, Jefferson, who appointed Albert Gallatin sec- 
retary of the treasury. Born in Switzerland, he emi- 
grated to this country when he was nineteen years old. 
He had served in the State Legislature of Pennsylvania, 
and was elected to the United-States Senate, but was 
refused admission because he had not lived in the United 
States long enough to become a resident of the country. 
Afterward he was elected to the House; and there he 
displayed that aptness for finance which for many years 
rendered him one of the foremost figures in American 
politics. He had been altogether the ablest critic of the 
financial plans of his opponents. In political manage- 
ment no one has ever been more adroit than Jefferson, 
but he knew hardly any thing about finance. Gallatin, 
therefore, was an indispensable member of the presiden- 
tial cabinet : and this is the reason why he retained office 
so long after he became unpopular with his own party ; 
there was no one to put in his place. 

Gallatin possessed a very clear and vigorous mind ; and, 
while his system of finance is not marked by any striking 
ideas and suggestions, he was always painstaking, honest, 



204 FINANCIAL HISTORY OF THE UNITED STATES. L1800. 

and ever zealous in promoting the strictest economy in 
all the concerns of the government. Though evincing 
something of a partisan spirit on a few occasions, the 
persons who have served the country so disinterestedly 
and efficiently are very rare. 1 

The debt having been funded, and the machinery set 
a-going for raising the means to pay it and the other 
expenditures of the government, Gallatin was confronted 
with no gigantic problems like those which blocked the 
path of Hamilton when he entered the treasury depart- 
ment. Friendly relations existed with all nations; the 
army and navy were reduced to the lowest point; the 
civil service was not burdened with useless officials ; 
the debt had somewhat increased in consequence of 
preparations for war with England and France, but not 
in proportion to the increase of population and wealth. 
" Through all their troubles," says Gallatin's biographer, 
" the Federalists had so carefully managed taxation, that 

1 Said John Quincy Adams at a dinner given in honor of Albert Gal- 
latin in New York in 1844, " I have lived long, sir, in this world, and I 
have been connected with all sorts of men, of all sects and descriptions. 
I have been in the public service for a great part of my life, and filled 
various offices of trust in conjunction with that venerable gentleman, Al- 
bert Gallatin. I have known him half a century. In many things we 
differed ; on many questions of public interest and policy we were divided ; 
and, in the history of parties in this country, there is no man from whom I 
have so widely differed as from him. But on other things we have har- 
monized ; and now there is no man with whom I more thoroughly agree 
on all points than I do with him. But one word more. Let me say, before 
I leave you and him, — birds of passage as we are, bound to a warmer and 
more congenial clime, — that among all the public men with whom I have 
been associated in the course of my political life, whether agreeing or 
differing in opinion with him, I have always found him to be an honest 
and honorable man." — Adams's Life of Gallatin, p. 676. 



180C] APPROPRIATIONS AND EXPENDITURES. 205 

there was absolutely nothing for Gallatin to do ; and he 
attempted nothing in regard to the tariff of impost duties, 
which were uniformly moderate and unexceptionable, 
while, even in regard to the excise and other internal 
taxes, he hesitated to interfere." 1 

"What Hamilton was to Washington, Gallatin was 
to Jefferson," says one who has studied his life and times 
with great care, "with only such difference as circum- 
stances required." Madison, it is true, exerted a potent 
influence over Jefferson : in truth, the government was a 
triumvirate almost as clearly defined as any triumvirate of 
Rome. During eight years the country was governed by 
three men, — Jefferson, Madison, Gallatin, — among whom 
the latter "not only represented the whole political influ- 
ence of the great Middle States, not only held effectively 
wielded the power of the purse, but also was avowedly 
charged with the task of carrying into effect the main prin- 
ciples on which the party had sought and attained power." 

During the summer and autumn of the first year Gal- 
latin perfectly mastered all the details of his office, and 
determined within what limits the expenditures of the 
several departments should be confined. The cabinet 
were in accord with respect to paying the debt, and that 
this should be done in preference to reducing taxes ; 
but they were also desirous of reducing these. The 
only way, therefore, to effect both objects, was to lessen 
expenditures. This could be more easily done, so Galla- 
tin thought, in the navy than anywhere else ; but the 
secretary of the navy was disinclined to introduce any 
new economy in his department. 

1 Adams's Life of Gallatin, p. 274. 



206 FINANCIAL HISTORY OF THE UNITED STATES. [1800. 



In response to the request of the President for the 
views of the secretary of the treasury concerning the reve- 
nue and expenditures of the government, in the autumn 
of that year he sent the following sketch : — 



Imports . . 
Lands, postage 



$9,500,000 



EXPENDITURE 



Interest .... 
Civil expenditures . 
Military expenditures 
Naval expenditures 



$7,200,000 

1,000,000 

930,000 

670,000 



Total $9,800,000 Total $9,800,000 

By applying the sum of $7,200,000 to the payment of 
the interest and principal, he expected to pay in eight 
years $38,000,000 of the debt. Fixing this as the amount 
which ought to be paid, and estimating the revenues at 
$9,800,000, he proposed that the departments should live 
from the balance, $2,600,000. If this could be done, he 
was willing to part with the internal revenues, which 
yielded $650,000, but not otherwise. " This," as Adams 
says, "seems to have been beyond his power. Few 
finance ministers have ever pressed their economies with 
more perseverance or authority than Mr. Gallatin, but he 
never succeeded in carrying on the government with so 
much frugality as this ; and the sketch seems to indicate 
what the administration would have liked to do, rather 
than what it did." For, in his report made a month 
later, he was obliged to modify his plan thus : — 



REVENUE. 

Imports $9,500,000 

Lands, postage . . . 450,000 
Internal revenues . . 650,000 



Total . 



$10,600,000 



EXPENDITURE. 

Interest, etc $7,100,000 

Civil expenditures . . 980,000 

Military expenditures . 1,420,000 

Naval expenditures . 1,100,000 



Total 



$10,600,000 



1802.] APPROPRIATIONS AND EXPENDITURES. 207 

Yet the internal taxes were abolished very early during 
Jefferson's administration, while Congress also adopted 
Gallatin's plan for the discharge of the public debt. How, 
then, were these ends effected ? Under the pressure of 
party necessity, both the secretary of war and of .the 
navy lowered their estimates to a point at which Gallatin 
consented to let the internal taxes go. He never officially 
recommended their repeal ; but the Committee of Ways and 
Means did, having been assured by the secretary of war 
and of the navy that a reduction of six hundred thousand 
dollars would be made in the expenditure of their depart- 
ments. The retrenchment, though promised, was never 
effected. Gallatin, however, had the good fortune to 
collect enough more revenue than he expected to supply 
the difference. Had not this event happened, there would 
have been a balance that year against the government. 
Gallatin was not to be thus favored very long. A war 
broke out with Tripoli, and further retrenchment in the 
navy department was impossible. 

It soon became evident, that, even with larger duties 
from imports, the expenses of the war could not be met 
without recovering the income sacrificed by the repeal of 
the internal taxes in 1802. Accordingly, an addition 
of two and a half per cent was imposed on all imported 
articles paying an ad valorem duty. What had been 
done, therefore, was simply a shifting of the mode of col- 
lection ; or, in other words, instead of raising a million 
dollars from whiskey, stamps, etc., this sum was raised 
on articles of foreign produce or manufacture. The extra 
tax was called the " Mediterranean Fund," and was sup- 
posed to be a temporary resource for the Tripolitan war. 



208 FINANCIAL HISTORY OF THE UNITED STATES. [1805. 

Although Jefferson was never slow in words, in advocat- 
ing economy, his course was singularly inconsistent with 
his professions. In his message the next year was a recom- 
mendation for dry docks at Washington. He had shown 
his message, before delivering it, to Gallatin for criticism, 
who remarked concerning that feature of it, " I am in toto 
against this recommendation, 1st, because so long as the 
Mediterranean war lasts we will not have any money to 
spare for the navy; and, 2d, because if dry docks are 
necessary, so long as we have six navy-yards, it seems to 
me that a general recommendation would be sufficient, 
leaving the Legislature free either to designate the place, 
or to trust the Executive with the selection." Sound 
advice, surely, but not heeded, in spite of the prediction 
of Gallatin, who told the President that his recommen- 
dation would not command thirty votes in Congress, the 
truth of which prophecy Jefferson in due time learned. 1 

During the first five years of Gallatin's administration 
of the finances, he was strongly opposed to the creation 
of a navy. His thoughts centred deepest in pa}dng the 
national debt; but it was redeemed so rapidly, that, in 
1805, he wrote to Jefferson that after the year 1809 there 
would be $3,500,000 of the annual sinking-fund available 
for other purposes. In the mean time there would proba- 
bly be a surplus of $2,000,000, a large portion of which 
he thought might be wisely employed in building a navy. 
As he had a clear idea of the incapacity of the secretary 
of the navy, Robert Smith, to expend the money economi- 
cally, he urged putting it into the hands of commissioners. 
No money, however, was then appropriated for that pur- 

i Adams's Life of Gallatin, p. 306- 



1806.] APPROPRIATIONS AND EXPENDITURES. 209 

pose ; though, had the secretary of the navy been an 
abler and better man, very likely the ideas of Gallatin 
would have hardened into legislation. 

Thus far Gallatin's administration had been success- 
ful. His report at the close of 1805 showed that the rev- 
enue had risen to 112,672,000 ; which, with the income 
of the Mediterranean Fund and of the land-sales, carried 
the receipts of the government nearly to $14,000,000. The 
surplus in the treasury, after meeting all the regular ex- 
penditures, navy deficiencies, and French claims, would 
still probably exceed $1,000,000. The debt was reduced 
so far, that, in four years longer, the entire sum redeem- 
able solely by the determination of the government would 
be discharged. The rest could be redeemed only by pur- 
chase, or by waiting until the law permitted its redemp- 
tion. " Should circumstances render it eligible," says 
Gallatin, "a considerable portion of the revenue now 
appropriated for the payment of the debt may then, in 
conformity with existing provisions, be applied to other 
objects." 1 

The following year was a still more prosperous one. 
The regular revenue exceeded $13,000,000 ; other receipts 
swelled the amount $1,500,000 more; $2,000,000, which 
had been appropriated for the purchase of Florida, had 
been supplied from the surplus, and sent abroad ; the 
Tripolitan war was over; a surplus of $4,000,000 was 
left in the treasury ; and only three years remained, when 
some disposition must be made of the excess of revenue. 
With such a rich prospect lying before him, the pleasing 
inquiry arose, Should the taxes be reduced, or should 

l Adams's Life of Gallatin, p. 348. 



210 FINANCIAL HISTORY OF THE UNITED STATES. [1806. 

the revenues be applied in new ways, and, if so, in 
what ones? Jefferson and Gallatin both believed, that, 
while it might be desirable to lessen the taxes in some 
directions, the nation would gain far more by continuing 
the system without any large reduction, and applying the 
surplus not needed for the regular expenditures and the 
payment of the public debt, in making internal improve- 
ments, and in founding a national university. The report 
of the commissioners who had been appointed to lay out 
the Cumberland road, extending from the Potomac to the 
Ohio, was laid before Congress in 1807. A month later 
the coast-survey was organized. Shortly afterward the 
secretary of the treasury was directed to prepare and 
report to the Senate a general scheme of internal im- 
provement. 

Gallatin had as strong a passion for organization as 
Hamilton. He was, indeed, a financial genius of the 
highest order ; and, though very exact in every detail, he 
also took a lofty and wide range of things. His report 
shows how thoroughly he had mastered a great theme. 

The expense of his scheme of internal improvements 
he estimated at 120,000,000. He proposed to appropriate 
12,000,000 a year until they were finished. The report 
embraced a series of roads and canals connecting various 
parts of the country ; and, by selling the stock created for 
building them, Gallatin counted on the fund becoming a 
permanent resource for further improvements. He was 
prevented from realizing more than two features of his 
plan. One was the establishment of the land-system ; 
and the other, the Cumberland road. As early as 1796 
he had framed an Act for establishing a land-system. It 



1807.] APPROPRIATIONS AND EXPENDITURES. 211 

applied, however, only to the lands lying north-west of 
the Ohio River, in which the Indian titles had been ex- 
tinguished ; and it provided for laying these out in town- 
ships six miles square, and for selling the land in sections, 
under certain reservations. When he became secretary 
of the treasury the system was fully developed, for he 
always retained his interest in this peculiar property of 
the government. 

At this time Jefferson launched his famous gunboat 
scheme. He sent a special message to Congress respect- 
ing it in the winter of 1806-7, recommending the govern- 
ment to build two hundred of them. Robert Smith, the 
secretary of the navy, was as hearty a supporter of this 
foolish scheme as Jefferson himself. Gallatin thought dif- 
ferently. He was " clearly of opinion " that the seventy- 
three in course of construction were more than enough. 
"Of all the species of force which war may require, — 
armies, ships-of-war, fortifications, and gunboats, — there 
is none which can be obtained in a shorter notice than 
gunboats, and none, therefore, that it is less necessary to 
provide beforehand. ,, No argument that Gallatin could 
urge moved Jefferson. Two years later Paul Hamilton, 
who was then secretary of the navy, reported that a 
hundred and seventy-six had been built, though only 
twenty-four were in actual service. The aggregate ex- 
pense to that date had been $1,700,000, or about 1725,000 
a year. In 1807 the entire naval expenditure was $1,722,- 
000, which increased the next year to $1,900,000. How 
different were these figures from the $650,000, fixed at 
the beginning of Jefferson's administration as the total 
annual expense for maintaining the navy department ! 



212 FINANCIAL HISTORY OF THE UNITED STATES. L1807. 

" Had all this expenditure improved the national de- 
fences, the waste of money would have see'med less out- 
rageous, even to Mr. Gallatin, who was its chief victim ; 
but, as most naval officers expected, the gunboats were 
in some respects positively mischievous, in others of very 
little use, and they were easily destroyed by the enemy 
whenever found. At the end of the war of 1812, such of 
them as as were not already captured, burned, wrecked, 
or decayed, were quietly broken up or sold." 

The commercial growth of America had been so great 
that England resolved to crush it. Canning was prime 
minister. The administration woke up to the realization 
of England's new policy when the news came that the 
" Chesapeake " had been captured by the British ship-of- 
war " Leopard." The first measure of defence was an 
embargo. Adams truly says that Jefferson, and most of 
the leaders of his party, had a strong faith in the efficacy 
of commercial regulations. They believed, that, as the 
commerce of America was valuable to England and France, 
therefore these countries might be forced to do our will by 
depriving them of our commerce. They were right in the 
end ; but unhappily England did not find out where her 
true interest lay, until after a five-years' experiment and 
a costly war. But Gallatin had no faith in the efficacy 
of an embargo to restrain belligerent powers, and in 
due time his prophecy proved true. 

If war must come, loans would be necessary ; and the 
embargo would produce a situation most favorable for 
making them. All that the treasury required, so Gallatin 
thought, beside economy, was to double the import du- 
ties, to limit the system of granting drawbacks on impor- 



1809.] APPROPRIATIONS AND EXPENDITURES. 213 

tations afterward exported, either to repeal or to complete 
the non-intercourse law, and to reform the system of ac- 
countability in the army and navy departments. 

The navy had not been economically managed since 
Jefferson assumed office. The same person administered 
its affairs (Robert Smith), who had spent a great deal of 
money, but had only a very little to show for his expendi- 
tures. Finally, it now appeared that he had bought bills 
of exchange to the amount of $250,000, within two years, 
of his brother, Gen. Smith, who was then a member of 
the Senate from Maryland; and from his connections, 
and on the face of the accounts, it appeared that these 
were, to some extent, accommodation bills : in other words, 
that the government money had been left by collusion 
in the possession of Gen. Smith's firm until they could 
conveniently remit it to its destination. When this pro- 
ceeding became known, one effect was to estrange very 
completely a group in the Senate who belonged to Galla- 
tin's party, and whose influence was indispensable to his 
maintaining control over that body. 

His report for 1809 announced a deficit. This was a 
part of the price of the embargo. For the next year he 
declared that a loan of $4,000,000 would be required, if 
the military and naval expenditures should be as large as 
those of the previous year. If Congress should resolve 
on a permanent increase in the military and naval estab- 
lishments, additional duties would be required; if not, 
a continuation of the Mediterranean Fund would be 
sufficient* 

The country was swiftly nearing the point of war ; yet 
the cost of waging it was a highly important matter, 



2 14 FINANCIAL HISTORY OF THE UNITED STATES. [1811. 

which Congress, nevertheless, shrank from considering. 
Under the operation of the embargo, the revenues were 
rapidly diminishing, while the expenses were far more 
rapidly swelling. Neither the President nor Gallatin rec- 
ommended war, but they were desirous of providing for 
it ; and the secretary recommended'increased taxes, and a 
loan of $1,200,000, to pay troops, and to support them. 
When war was really imminent, the Committee of Ways 
and Means requested Gallatin to appear before them to 
discuss the question of war taxes. He appeared; and, 
after declaring that he did not feel himself particularly 
responsible for the position occupied by the nation, he 
added, that it could not recede therefrom with honor 
and safety, and that it must maintain that position with 
all the available means which could be brought to bear 
on the enemy, and that a system of increased taxation, 
which he fully set forth, ought to* be immediately put into 
operation. 

These declarations fell like an unexpected thunderbolt 
on Congress. The clouds had, indeed, long been gather- 
ing ; but Congress would not look up and see them. Now, 
when the very bolt of Jove had descended, Congress could 
no longer ignore the perils of the situation. They had 
been willing to authorize loans ; but they had resolutely 
turned their faces away from Gallatin's recommendations 
to increase the taxes, notwithstanding his repeated warn- 
ings and urgent requests. 

A letter afterward written to the chairman of the Com- 
mittee of Ways and Means intensified and widened opposi- 
tion to him, which had been increasing, even in the face 
of approaching war. It was a sad and humiliating spec- 



1813.] APPROPRIATIONS AND EXPENDITURES. 215 

tacle to behold Gallatin strenuously exerting all his great 
energies to prepare his country for the coming struggle, 
and this cabal madly trying to overthrow him and all his 
works, no matter how manifest was their wisdom, or great 
their necessity. Their conduct truly resembled that of 
the Jesuits after the terrific earthquake at Lisbon, who 
were not less remitting in their intrigues against Carvalho, 
notwithstanding his devotion to the work of burying 
the dead, and rescuing the living. During the earlier 
years of Gallatin's administration of the treasury, he had 
exercised an extraordinary power over his party in Con- 
gress, and also over Jefferson. This was due mainly to 
the fact that he was almost the only one who knew any 
thing about the national finances. Jefferson had at all 
times trusted his faithful and able secretary. He had 
clung to him as his sheet-anchor, although not always in 
favor of the secretary's economies, especially in the navy 
department. Yet Jefferson would often yield to the supe- 
rior reasoning of Gallatin, as we have shown. 

While Gallatin was far more capable of administering 
the duties of his office than any other member of his 
party, it was easy to see, that, possessing such strict no- 
tions of economy and honesty, he would eventually create 
a very rank hostility to himself. At last it had become 
so great as to paralyze his influence. Yet when he abdi- 
cated, and went abroad to negotiate a treaty, he was never 
more sorely needed in the treasury department. Still it 
was useless for him to remain. Hostility toward him had 
become so strong, that he could remain no longer with 
credit to himself, and profit to his country. 

He did not resign his office, but went abroad retaining 



216 FINANCIAL HISTOKY OF THE UNITED STATES. [1813. 

it, as Jay did the chief-justiceship of the United- States 
Supreme Court while negotiating a treaty with Great 
Britain. But Gallatin's enemies refused to confirm his 
nomination for the new post unless he resigned the other, 
and so at last his resignation was sent. The faction op- 
posed to him in his own party had finally triumphed. 
They had succeeded in getting him out of the treasury, 
but their effort to break him down had proved very costly 
to the nation. The financial legislation of Congress, 
during the dreary and inglorious period of the war, is 
clearly explicable, when viewed chiefly as an unpatriotic 
effort to destroy the influence of the most competent 
financier then living. The faction which accomplished 
this fell purpose, by no means constituted a majority of 
the controlling party; but they were active and unscrupu- 
lous. The President feared them : consequently they pos- 
sessed a tremendous power, which they wielded primarily 
to destroy Gallatin, even if in so doing they imperilled 
the country itself. 



BOOK II. 



FROM THE OPENING OF THE WAR OF 1812 TO ITS 
CLOSE IN 1815. 



CHAPTER I. 

WAR-LOANS. 

Gallatin saw the deepening war-cloud several years 
before it burst. Like a prudent statesman, he informed 
Congress what preparation ought to be made for so un- 
welcome an event. The accumulation of a war-fund, and 
the renewal of the bank charter, were suggested : so were 
additional taxes and loans. The credit of the govern- 
ment at that time was not impaired, either at home or 
abroad; and he believed "that loans to a reasonable 
amount might be obtained on reasonable terms." The 
banks, too, would be. likely to loan " a considerable por- 
tion of their capital stock ; " for, if war occurred, Ameri- 
can commerce would shrink, and no other avenue would 
be open for employing their resources. 1 Their capital was 
supposed to be forty million dollars. 

A year afterward Gallatin reiterated his opinion that 
" loans should be principally relied on in case of war." 
That opinion, he declared, had been corroborated by 
every subsequent view which he had taken of the sub- 
ject, and by the present situation of the country. The 
embargo had brought into the United States, and kept 
there, almost all the floating property of the nation. 

i Annual Report, Nov. 7, 1807. Ibid. t Nov. 25, 1811. 

219 



220 FINANCIAL HISTOEY OF THE UNITED STATES. [1812. 

Whilst the depreciated value of domestic products in- 
creased the difficulty of raising a considerable revenue 
by internal taxes, at no former time had there been so 
much specie and unemployed capital in the country. 
The high price of public stocks, and, indeed, of all kinds 
of stocks, the reduction of the public debt, the unim- 
paired credit of the government, and the large amount 
of existing bank-stock in the United States, left no doubt 
of the practicability of obtaining the necessary loans on 
reasonable terms. 1 

The plan of finance proposed by Gallatin at the outset 
of the struggle was very simple : it was to raise a reve- 
nue, during each year of the war, equal to the expense of 
the peace establishment, including interest on the remain- 
der of the old debt, and also on future loans, and to 
defray the extraordinary expenses of the war from bor- 
rowed money. 

In January, 1812, he wrote a letter to the committee of 
ways and means, at their request, concerning the need of 
increasing the revenue. One of the inquiries in their 
communication to him related to the terms on which 
loans amounting to at least $10,000,000 annually could 
be obtained. To this question he replied, that the terms 
could be ascertained only by experiment. The govern- 
ment had never, since its organization, obtained considera- 
ble loans within the United States at the rate of six per 
cent a year, except from the Bank of the United States ; 
and these had not exceeded $7,000,000. Of course, in 
proportion to the amount wanted for the service of the 
year, and to the increase of stock of the public debt in 

i Annual Report, Dec. 16, 1808. 



1812.] WAR-LOANS. 221 

market, must the terms become less favorable. Beside 
the sum required to defray the extraordinary expenses of 
the war, an annual loan, equal to the annual reimburse- 
ment of the six-per-cent and deferred stock prescribed by 
law, would be wanted. The loan for this sum would not 
create any addition to the debt, but would, of course, 
increase the sum needed. Moreover, if the price of 
stocks fell below par, the commissioners of the sinking- 
fund were bound by the existing laws to apply the resi- 
due of the annual appropriation of $8,000,000 a year to 
the purchase of stock. That residue for the year 1812 
amounted to $3,640,000, which the secretary of the treas- 
ury would also be required to borrow. 1 

The first war-loan was authorized in March, 1812, about 
three months before war was formally declared. 2 The 
President was authorized to borrow $11,000,000 at six 
per cent interest, payable quarterly, and the principal 
within twelve years from the beginning of the following 
year. Stock was to be issued for the amount borrowed, 
and the public revenues were pledged for its payment. 3 

If war must come, surely it was the duty of the gov- 
ernment to make adequate preparation. Yet the opposi- 
tion to Gallatin among the members of his own party in 
Congress was so strong, that they seemed more desirous 
of crushing him than in preparing the nation for the 
contest with Great Britain. The day the loan-bill was 
passed he wrote to Nicholson, his father-in-law, "We 

1 Ways and Means Report, Jan. 20, 1812, 2 Finance, p. 523. 

2 Act, March 14, 12 Cong., first session, chap. 41. 

8 For documents relating to loan, see Niles's Weekly Reg., vol. ii. 
pp. 91, 194. 



222 FINANCIAL HISTORY OF THE UNITED STATES. [1813. 

have not money enough to last till the first of January 
next, and Gen. Smith [who was the Republican leader in 
the Senate opposed to Gallatin] is using every endeavor 
to run us aground by opposing every thing, — treasury- 
notes, double duties," etc. It may be asked, " Why did 
not the President select another man for secretary of the 
treasury, who could secure the co-operation of his party?" 
The answer is, " Gallatin had occupied the position twelve 
years, and there was no other person so w^ell qualified to 
discharge the duties of the office." To dispense with his 
services on the eve of war was a step which Madison 
never for a moment thought of taking. Not until Gal- 
latin's power was nearly gone could the President part 
with him, and even then with great reluctance. Madi- 
son knew his worth, and, though fully comprehending the 
situation, retained him until Gallatin would remain no 
longer. 

Subscriptions to the loan were opened on the 1st and 2d 
of May. The banks were invited to subscribe, and so 
were individuals. The former were permitted either to 
receive stock, or to loan money by special contract. No 
limit was set to the amount of subscriptions for any 
place, and the loan was kept open only two days. Dur- 
ing that period $4,190,000 were subscribed by banks, and 
$1,928,900 by individuals. The last figure was larger 
than the aggregate of all the loans at six per cent ever 
before obtained by the government from individuals in 
the United States. Considering the price of stocks, and 
various obstacles which at that time impeded subscrip- 
tions, the amount was quite as great as there was any 
reason for expecting within so short a period. The sub- 



1812.] WAR-LOANS. 223 

scribers were required to pay one-eighth, -of the sum sub- 
scribed at the time of subscribing, and a similar sum on 
the fifteenth day of each month until the whole was paid. 
In case any one failed to pay the later instalments, the 
amount previously paid was forfeited to the government. 1 
At the time Gallatin reported what subscriptions had 
been made to the loan, he "submitted the propriety of 
authorizing the issue of treasury-notes," from which ulti- 
mately flowed grave consequences to the country. More 
than two years before, he had declared that these notes, 
bearing interest, and payable to order one year after date, 
might be annually issued to a moderate amount, and be 
put in circulation, both through the medium of banks, and 
in payment for supplies. They would be absorbed, he 
said, in buying the public lands, and in discharging reve- 
nue bonds ; and the redemption of the residue could be 
effected by loans. To issue them in such a way was to 
anticipate the revenue, — a policy which Gallatin on a 
former occasion had quite severely criticised ; but, though 
liable to abuse, he affirmed, that, if kept within strict 
bounds, their issue might facilitate the collection of the 
revenue, and the raising of loans. He recommended that 
no more be issued than the balance of the loan not sub- 
scribed ; that five and two-fifths per cent a year be their 
rate of interest, which was equal to a cent and a half per 
day on a hundred-dollar note ; that the time for their pay- 
ment be one year from the date of issue ; and that the 
notes be receivable for all dues to the United States. Re- 
ceiving the recommendation favorably, Congress author- 

1 Gallatin's Communication to the House, May 18, 1812, 2 Finance, 
p. 564. 



224 FINANCIAL HISTORY OF THE UNITED STATES. [1813. 

ized the President to issue five millions in the manner 
suggested by Gallatin. 1 They were transferable by deliv- 
ery and assignment ; and the commissioners of the sinking- 
fund were directed to reimburse them when due. They 
were also authorized to buy them, like other evidences of 
the public debt, at a price not exceeding par for the prin- 
cipal and interest due at the time of the purchase. Thus 
was launched a new financial experiment, the fruit of 
which ripened and fell after a short season. 2 

The military events of the first year of the war were 
most disastrous and humiliating to the American arms. 3 
Preparations had been made with singular slowness; an 
American army was surrounded and captured at Detroit ; 
incompetence was displayed alike in the war department 
and in the field ; the fame of the navy was saved by the 
success of two or three frigates which had been built 
when the Federalists were in power, the construction of 
which was violently resisted by their political opponents ; 
Jefferson's gunboats went to pieces : yet, notwithstanding 
these sickening disasters, Congress remained inactive. 4 

The expenditures for the army and navy had been 
made with no economy or efficiency. Gallatin had la- 
bored industriously but hopelessly to diminish them. He 
told Jefferson there were only two practicable ways to 
do this. One was to confine them to necessary objects ; 
and the other was to introduce a perfect system, and 

1 Act, June 30, 1812, 12 Cong., first session, chap. 111. 

2 Ways and Means Report, March 21, 1810, 11 Cong., second session, 
2 Finance, p. 412. Gallatin's Communication to the House, June 29, 1812, 
2 Finance, p. 569. 

3 War was declared June 18, 1812. 

4 Adams's Life of Gallatin, p. 467. 



1813.] WAR-LOANS. 225 

suppress abuses in the necessary branches. "I have no 
doubt," he adds, "that knowledge and talents would save 
several millions, and the necessary business be better 
done." 1 

Early in October, Gallatin wrote to the President that 
the army and navy estimates would require a loan of 
821,000,000 for the year 1813, but he thought that such 
an amount was " unattainable." Little or nothing could 
be expected from banks, because they had " already lent 
nearly to the full extent of their facilities." The indi- 
vidual subscriptions had not exceeded $3,200,000. 

When Gallatin communicated his next report to Con- 
gress, near the close of the year, 2 17,415,200 of the loan 
had been subscribed in stock and in temporary loans, 
bearing six per cent interest ; the sum of $1,350,000 was 
reimbursable in 1813, $750,000 in 1814, $50,000 in 1815; 
and the amount of treasury notes issued was $3,535,000. 

Following Gallatin's recommendation, Congress author- 
ized a loan of $16,000,000, containing several new fea- 
tures. 3 The President was authorized to " sell the whole 
or any part of the certificates of stock issued for the sums 
to be borrowed," without any limitation whatever. This 
authority was doubtless conferred by Gallatin's sugges- 
tion, that, in order to facilitate the loan, it might " be eli- 
gible to leave some discretion with the executive " with 
respect to the amount of stock to be issued. The secre- 
tary of the treasury was authorized to employ agents, 
with the approval of the President, to obtain subscrip- 

1 Adams's Life of Gallatin, p. 469. 

2 Dec. 7, 1812. 

8 Act, Feb. 8, 1813, 12 Cong., second session, chap. 21. 



226 FINANCIAL HISTORY OF THE UNITED STATES. [1813. 

tions, to whom one quarter of one per cent was allowed 
on the amount sold. 

When Gallatin opened this loan, the treasury was 
nearly exhausted; "so nearly," says Adams, 1 "that on 
the 1st of April it was absolutely empty, and must have 
ceased to meet the requisitions of the war and navy de- 
partments. The Federalists were in high hope that the 
loan would fail, and government fall to pieces ; and they 
made the most active efforts to force this result." To 
tempt subscribers, they were offered an annuity of a dol- 
lar for thirteen years on every sum of a hundred dollars 
subscribed; but this bait was not tempting enough to 
draw more than 13,956,400 into the treasury, which were 
subscribed on the 12th and 13th of March. The ex- 
periment was repeated from the 25th to the 31st of the 
same month, and $1,881,800 were subscribed. When the 
second notification was given, proposals were invited for 
loaning to the government the whole or any part of the 
sum that might remain unsubscribed on the first day of 
April. The secretary also stated, that, if the proposals 
differed, all should be placed on the same footing, includ- 
ing those who had previously subscribed. The govern- 
ment having thus placed itself at the feet of the money- 
lenders, they were willing to propose terms for loaning 
the money needed : indeed, proposals exceeded by $944,- 
200 the amount which could be received, beside $1,000,- 
000 subscribed too late by the State of Pennsylvania. 
The terms proposed by the lenders, in most instances, 
were, either that they should receive a six-per-cent stock, 
with interest payable quarterly (redeemable, at the 

i Life of Gallatin, p. 477. 



1813.] WAR-LOANS. 227 

pleasure of the government, after 1825), at the rate of 
eighty-eight per cent, or a hundred dollars in stock for 
eighty-eight dollars in money ; or that the lenders for 
every hundred dollars in money should receive a hundred 
dollars in the same species of six-per-cent stock, and an 
annuity for thirteen years from the 1st of January, 1813, 
of a dollar and a half, payable quarterly. In two pro- 
posals, however, was inserted the condition, that, if an- 
other loan for the service of the year 1813 were made 
under any other law prescribing different terms to lenders, 
it might apply to them if they desired. The former pro- 
posal was accepted, which was equivalent to a premium 
of $13.63j*j on every sum of a hundred dollars loaned to 
the government. David Parish and Stephen Girard sub- 
scribed for half the loan, and John Jacob Astor for $2,- 
056,000.! 

One reason why no better terms could be obtained was 
because Congress shrank from providing adequate reve- 
nues to maintain the government. Internal taxation was 
absolutely necessary, because the revenues from imports 
had heavily declined; yet, manifest as was the need of 
taking the step, Congress hesitated. Jones, who was now 
acting as secretary of the treasury, Gallatin having been 
appointed one of the three commissioners to make peace, 
very frankly declared that " the terms of the loan would 
have been more favorable, if the taxes had been previ- 
ously laid." 

Besides, the Federal party was opposed to the war, and 
very generally declined to loan money to the government. 

1 For terms of sixteen-million-dollar loan, see Senate Communication, 
July 29, 1813, 2 Finance, p. 646. 



228 FINANCIAL HISTORY OF THE UNITED STATES. [1813. 

Opposition was strongest in New England, because her 
interests were so injuriously affected: at no period did 
she furnish much pecuniary support. 1 

The nature of Gallatin's contract with Girard and 
Parish was not publicly known at the time of making it, 
nor until the secretary was far away from Washington. 
When its terms were first made known in the Senate, a 
furious outcry arose. It could not be shown that Galla- 
tin had exceeded his authority; and surely, if he could 
have obtained more favorable terms for the government, 
he would. That he was obliged to accept sucli hard con- 
ditions proved nothing against him ; but they were a 
mournful proof of the pitiable plight of the government 
at the very outbreak of its struggle with Great Britain. 
Gallatin's object in hiding this information from the pub- 
lic eye was to prevent any immediate variation in the 
price of the stock. When all the facts surrounding the 
transaction appeared, the propriety of Gallatin's conduct 
was no longer questioned. 2 

Five millions of treasury-notes were authorized for the 
year ; forming, however, a part of the sixteen-million loan. 
The secretary was also authorized to appoint agents to 

1 " The proceeds of loans (exclusively of treasury notes and temporary 
loans) paid into the treasury from the commencement of the war to the 
end of the year 1814 amounted to $41,010,000. 

"Of that sum, the Eastern States sent $2,900,000; New York, Pennsyl- 
vania, Maryland, and the District of Columbia, $35,790,000; the Southern 
and Western States, $2,320,000. The floating debt, consisting of outstand- 
ing treasury notes and temporary loans unpaid, amounted on the 1st of 
January, 1815, to $11,250,000, about four-fifths of which were also due to the 
Middle States." — Gallatin, Consideration on the Currency and Banking 
System of United States, Writings, vol. iii. p. 284. 

2 Incidents in Life of Jacob Barker, pp. 42-44. 



1814.] WAR-LOANS. 229 

sell them, who were to receive a commission of one- 
quarter of one per cent. 1 

The expenditures greatly exceeding the estimates of 
the secretary, it was seen, before six months of the year 
were gone, that another loan must be made. This was 
fixed at $7,500,000 ; but the Act contained a stipulation 
that no certificates of the stock should be sold at less 
than eighty-eight per cent. 2 Proposals were invited ; and 
the offers were slightly better than those for the former 
loan, averaging $88.25 in money for a hundred dollars 
in stock, which were equivalent to $13.31^ on each sum 
of a hundred dollars loaned to the government. 3 

In March, the next year, the President was authorized 
to borrow $25,000,000, without restriction, save that the 
loan might be paid whenever the government desired, 
after twelve years. 4 A loan was opened the 2d of May 
for $10,000,000 only, the secretary of the treasury be- 
lieving he was more likely to succeed than if he attempted 
to get the whole amount at once. The sums offered 
amounted to $11,900,806, of which $2,671,750 were at 
less than eighty-eight per cent, and $1,183,400 at less 
than eighty-five. Of the $9,229,056 offered at eighty- 
eight per cent, a condition accompanied the offer of 
$5,000,000, that, if terms more favorable were allowed to 
lenders for any part of the entire loan, the same terms 
should be allowed to all. Notwithstanding this condi- 
tion, the need of money was so great that the loan was 

1 Act, Feb. 25, 12 Cong., second session, chap. 27. 

2 Act, Aug. 2, 1813, 13 Cong., first session, chap. 51. 

3 Jones's Report, Jan. 10, 1814, and accompanying papers. 

4 Act, March 24, 1814, 13 Cong., second session, chap. 29. 



230 FINANCIAL HISTORY OF THE UNITED STATES. [1814. 

accepted. In doing so, the treasury thought of the early 
return of peace, the importance of maintaining in the 
mean time the public credit by sustaining the price of 
the government stock, and also that the contract was sanc- 
tioned by precedent. Had the five-million offer been 
rejected, the amount offered at eighty-eight per cent would 
have been reduced to less than 15,000,000, — a sum alto- 
gether inadequate to the public demands ; or, by depressing 
the stock to eighty-five per cent, only a little more than 
$6,000,000 would have been received. Offers amounting 
to $566,000 were subsequently made and accepted on the 
same terms as those described. Thus the loan was aug- 
mented to $9,795,056. 

The loan was to be paid in four instalments. Camp- 
bell was secretary of the treasury, but he possessed nei- 
ther the requisite talents nor the physical strength to 
perform the duties of his office. Consequently the busi- 
ness of negotiating loans was very largely confided to 
Mr. Sheldon, the chief clerk, who was opposed to the 
war, and unceasing in his efforts to throw obstructions 
in the path of those who were trying to aid the gov- 
ernment. It was agreed in the beginning, that, when 
instalments were paid, funded stock should be issued. 
When, however, the first instalment was paid, instead 
of issuing funded stock therefor, the secretary issued 
scrip certificates for the amount, retaining the stock as 
security for the payment of the other instalments. The 
holders desired stock, because they could pledge it to 
the banks or sell it; but they could do nothing with 
their certificates, save to keep them until all the instal- 
ments were paid, and then exchange them for stock. 



1814.] WAR -LOANS. 231 

After long importuning, the secretary concluded to issue 
certificates of funded stock for nineteen-twentieths of 
it. " This one-twentieth part," he says in a letter to 
Barker, 1 the largest lender, "is retained in scrip as the 
assurance for the payment of the next instalment." The 
certificates of stock did not mention a very important 
part of the agreement ; namely, that, if subsequent par- 
ticipants in the twenty-five-million loan obtained better 
terms, they should likewise include all lenders of money 
to the government under that loan. This omission ex- 
cited distrust and dissatisfaction. Such treatment of the 
lenders by the secretary did not improve the credit of 
the government. At a time when money was sorely 
wanted at almost any price, the policy of estranging pub- 
lic lenders by changing the conditions of a formal contract 
without their consent, was as unexpected as it was disas- 
trous, both to the government and to individuals. Some 
of those who had promised to lend money were unable 
to fulfil their promises. Had the secretary of the treasury 
promptly issued stock when the instalments were paid, 
the lenders would have been able to borrow money by 
pledging the stock, and thus would have secured funds 
for paying further instalments. 2 

In August proposals were invited for a loan of $6,000,- 
000. The whole amount offered was only 12,823,300 ; of 
which sum $100,000 were at rates less than eighty per 
cent, and $2,213,000 were at the rate of eighty dollars in 
money for one hundred dollars of six-per-cent stock. The 
remaining sum of $510,300 was offered at various rates 
between eighty and eighty-eight. Notwithstanding the 

1 Incidents in the Life of Jacob Barker, p. 65. 2 Ibid., p. 78. 



232 FINANCIAL HISTOEY OF THE UNITED STATES. [1814. 

reduced rate at which the greater part of the money was 
offered, the market-price of the stock having fallen below 
eighty per cent, with no prospect of getting money on 
better terms, the amount offered, even at that low rate, 
was accepted. At that price there was another subscrip- 
tion for a small amount, but this was more than swept 
away by those who failed to execute their proposals ; so 
that, of the $6,000,000 wanted, only $2,520,300 could be 
borrowed. 1 

The failure of this loan was intensified by the unpleas- 
ant consideration, that, having agreed to sell its stock at 
a discount of twenty per cent, the government was 
obliged to grant a further discount of eight per cent to 
those who had subscribed to the ten-million loan. The 
treasury department at first declined to issue supple- 
mental stock for the difference, although its obligation 
to do so could not have been more clearly expressed. 
Moreover, to refuse to recognize the just claims of cred- 
itors at such a critical emergency, when the credit of the 
government had ebbed so alarmingly low, was an extraor- 

1 The finances were in such a low state, that many thought it would 
be impossible for the government to maintain its army and navy. The 
banks of New York refused to loan their bills without additional security. 
" It was understood, however, that, if treasury-notes indorsed by Gov. 
Tompkins were deposited, the money would be forthcoming. Rufus 
King immediately waited upon the governor, and acquainted him with the 
fact. ' I should be obliged to act on my own responsibility, and should be 
ruined,' replied Tompkins. ' Then ruin yourself, if it become necessary 
to save the country, and I pledge you my honor that I will support you in 
whatever you do,' exclaimed King. Oliver Wolcott, president of the Bank 
of America, and other prominent Federalists, uttered similar sentiments. 
Tompkins indorsed the notes on his own personal and official security, and 
half a million was promptly loaned." —Mrs. Lamb's History of City of 
New York, vol. ii. p. 648. 



1814.] WAR-LOANS. 233 

dinary act of folly. When Dallas succeeded Campbell, 
he readily acknowledged the justness of the claim, but 
required the lenders to waive every future claim of the 
kind, whatever might be the price of their selling gov- 
ernment stocks. They insisted on receiving their supple- 
mental stock. At the same time they would not relinquish 
any right that might spring from their contract. Jacob 
Barker, who was the heaviest lender, represented the 
whole number, and he pressed their claim with great 
energy. Finally Dallas acceded, and the supplemental 
stock was issued without any modification of the original 
agreement. 

To evade the possible consequence of issuing more 
supplemental stock to the holders of the twenty-five- 
million loan, a new loan for three million dollars was au- 
thorized by Congress, 1 although the proceeds were to be 
devoted to the same purposes as the money derived from 
the former one. This subterfuge was too transparent to 
be successful. 2 The loan was opened, and the stock was 
taken principally by the banks west and south of New 
England ; but having suspended specie payments, al- 
though they paid eighty dollars a share for their stock, 
their notes were equivalent only to sixty-five in specie, 
— the money in which the holders of the twenty-five- 
million loan had paid for their stock. These now insisted 
on receiving the difference of fifteen per cent in stock, 
but this claim was stoutly resisted. Dallas asked for 
proof of the claim. Just as the demand was, over forty 
years passed before the claim was allowed. Again and 

1 Act, Nov. 15, 1814, 13 Cong., third session, chap. 4. 

2 Incidents in Life of Jacob Barker, p. 103. 



234 FINANCIAL HISTORY OF THE UNITED STATES. [1814. 

again was it placed before the secretary of the treasury 
and before Congress, but its acknowledgment was de- 
layed. Not until 1855 did Congress render justice, and 
authorize its payment. 

The experiment was now tried of negotiating a loan in 
Europe. These had been successful under the Confed- 
eration, and during the early years of the government; 
but from that quarter nothing could be drawn at this 
truly critical hour. 1 

There were now in circulation nearly $8,000,000 of 
treasury-notes, more than one-half of which were redeem- 
able in the last quarter of the year. A part of them, it 
was believed, could be replaced with new notes ; yet more 
than $6,000,000 would still remain in circulation, which 
the experience of the last two years had shown to be 
as many as would freely circulate while the public con- 
fidence in bank-notes lasted. The secretary of the 
treasury indulged in the hope of circulating a few more 
by issuing notes of a smaller denomination, but in no 
event did he expect that the amount would be increased. 

The prospect, therefore, of raising funds to sustain the 
government, was indeed cheerless, and grew darker every 
day. All the banks, save those of New England, had 
suspended specie payments; and their issues were now 

1 To effect this purpose, the requisite powers and instructions were 
given for negotiating a loan for six million dollars, which was a part of the 
twenty-five-million loan authorized by the Act of March 24. Six-per-cent 
stock was transmitted with directions for selling it, if that should be found 
the most advantageous mode for obtaining the money (Sec. Campbell's 
Report, Sept. 26, 1814). Dallas says that three millions of stock were issued, 
and sent to Europe, but not sold {Letter to Committee of Ways and Means, 
Feb. 24, 1815). 



1814.] WAR-LOANS. 235 

resting on miry ground. Campbell was secretary of the 
treasury, and, though he had held the office for only a 
short time, was sinking under the heavy burden he 
was trying to bear. If more loans must be issued, he 
recommended that additional inducements be offered to 
capitalists to advance money, by providing an ample and 
unequivocal security for the regular payment of the 
interest, and reimbursement of the principal, of such 
loans as might be obtained. This could be effected 
by establishing an adequate revenue, and by pledg- 
ing it specifically for that purpose. He also inquired 
whether the treasury-notes, by augmenting the rate of 
interest they bore, and securing their payment, as 
well as their eventual reimbursement, by an adequate 
revenue pledged for that purpose, would not have 
better credit, and their circulation be encouraged, and 
thus fulfil with more certainty the purposes of the 
government. 

One thing was clear : the plan of finance adopted at the 
beginning of the war had proved unsuccessful. On no 
reasonable terms could loans be annually obtained for 
the amount of extraordinary expenditures occasioned by 
the war. Says Campbell, in his report to the Senate, "The 
experience of the present year furnishes ground to doubt 
whether this be practicable, at least in the shape in which 
loans have been hitherto attempted. Nor is it even certain 
that the establishing and pledging of revenues adequate 
to the punctual payment of the interest, and eventual 
reimbursement of the principal, of the sums which will 
be required for the service of the year 1815, would enable 
the treasury to obtain them through the medium of loans 



236 FINANCIAL HISTORY OF THE UNITED STATES. [1814. 

effected in the ordinary way." 1 He therefore favored the 
policy of deeper and wider taxation, — enough to pay a 
portion of the war expenditures. 

A similar opinion was echoed by the Committee of Ways 
and Means a few months later. "A reliance on loans, in 
the present situation of this country, would be uncertain, 
and the terms on which they could be obtained not such 
as to induce a resort to them at the present moment." 
The credit of the government was gone. 

How, then, were funds to be provided for carrying on 
the war? The Committee of Ways and Means could think 
of no better mode than to issue treasury-notes, combined 
with a system of increased taxation. The want of some 
medium, it was affirmed, resting on a solid basis, uniting 
public confidence, and having a general instead of a local 
circulation, was universally acknowledged. The stoppage 
of specie payments by the principal banks of the Middle 
States had greatly embarrassed the operations of the 
treasury, and, by confining the circulation of notes to the 
limits of the States within which they were issued, had 
deprived the government of all facilities in remitting 
money which was afforded while public confidence gave 
to bank-notes a general circulation. The notes of New 
York and Philadelphia would not be received in Boston. 
The notes of Baltimore and of the District of Columbia 
would not answer for payments in Philadelphia. If, there- 
fore, treasury-notes could supply the place of a circulating 
medium between the different States, they would greatly 
facilitate the operations of the government, and free 
the transactions of individuals from embarrassment. To 

i Sept. 26, 1814, 2 Finance, p. 840. 



1814.] WAR-LOANS. 237 

secure these ends, the committee proposed to issue the 
notes in sums sufficiently small for the ordinary purposes 
of business; to allow the individual who held them to 
fund them, whenever he desired, at any of the loan- 
offices, and to receive the amount in stock of the United 
States, bearing eight per cent interest; to make them 
payable to bearer, and transferable by delivery, receivable 
in payment for public land and taxes ; and, lastly, to 
pledge for the payment of the amount issued whatever 
internal duties were needed. To prevent an excessive 
accumulation of them, the committee proposed that the 
government should retain the power, after six months' 
notice, to redeem them with specie, or exchange them for 
stock bearing six per cent interest. If these things were 
done, and taxes were imposed which should manifest 
clearly the ability of the government to meet its engage- 
ements, they confidently believed the difficulties sur- 
rounding it would vanish, confidence be restored, "and 
the capital hoarded by avarice, or locked up from 
timidity," would appear in the accustomed channels of 
circulation. 1 Congress, however, declined to change the 
mode of issuing them; and $7,500,000 were authorized in 
the former way, though at the time of doing this nearly 
$22,000,000 were due and unpaid. 2 

Toward the close of the year, Jefferson suggested the 
expediency of issuing paper money gradually to the amount 
of $200,000,000. " He had," says Gallatin, " from the im- 
perfect data in his possession, greatly overrated the amount 

1 Report on the State of the Finances, Oct. 10, 1814, 2 Finance, p. 854. 

2 Dallas's Letter to Com. of Ways and Means, Dec. 5, 1814, 2 Finance, 
p. 877. 



238 FINANCIAL HISTORY OF THE UNITED STATES. [1815. 

of paper currency which could be sustained at par, and 
he had, on the other hand, underrated the great expenses 
of the war. Yet we doubt whether," so Gallatin adds, 
" in the state to which the banks and the currency had 
been reduced, much greater issues of treasury-notes, or 
other paper not convertible at will into specie, would 
have become necessary, if the war had been of much 
longer continuance." 1 

The secretary recommended that authority be granted 
to emit ^15,000,000 of treasury-notes, in such denomi- 
nations as he might direct, with the approval of the 
President. Those for twenty dollars or more were to be 
payable to order, and bear an annual interest of five and 
two-fifths per cent: those for a smaller sum were to be 
payable to the bearer, and carry no interest. They were 
to be exchangeable, however, in sums not less than one 
hundred dollars, for certificates of stock bearing seven 
per cent interest, and redeemable after twelve years from 
date. The notes were to be receivable in all payments 
throughout the country, but in such cases could be 
re-issued. They were to be payable in five annual in- 
stalments. The reimbursement of the notes was to be 
effected, either by the payment of the principal and inter- 
est to the holders, or by taking out of circulation and 
destroying the amount of the instalments in notes paid to 
the United States for duties, taxes, or other demands. 

Two months later the secretary referred to the subject 
in a communication to the House. 2 The total issue, in- 
cluding those which had been ordered, was $18,637,- 
436.80. Shortly afterward Congress authorized the issue 

i Writings of Gallatin, vol. iii. p. 338. 2 Feb. 20, 1815. 



ISIS.] WAR-LOANS. 239 

of $25,000,000, adopting the mode recommended by the 
secretary of the treasury. 1 The law was enacted the 
24th of February. 2 It was soon discovered that the small 
notes, which were convertible into stock bearing seven 
per cent interest, though convenient for a circulating 
medium, were thus converted almost as soon as they were 
issued. Accordingly, their issue was restricted to cases 
of peculiar urgency, like paying the army preparatory to 
its reduction, payment of dividends on the public debt 
when local currency could not be procured, and the 
payment of an inconsiderable amount of miscellaneous 
claims. The total amount issued for these purposes to 
the end of September was $2,777,860. A small quantity 
was sold for the purpose of raising funds to meet, the 
general engagements of the treasury. The amount was 
11,365,000, which were sold at an advance of $32,107.64. 
The notes of a larger denomination than twenty dollars, 
which could not be converted, were issued in larger quan- 
tity.3 

About the same time that Congress was authorizing 
the issue of these treasury-notes, authority was granted 
for making the final loan of the war. 4 Dallas had recom- 
mended a loan of $25,000,000 on the most advantageous 
terms that could be obtained. Congress limited the sum 
to $18,452,800, and allowed the secretary of the treasury 
to accept in payment treasury-notes which had been pre- 
viously issued. 

1 Dallas's Letter to Com. of Ways and Means, on Estimated Revenues 
for 1815, Feb. 25, 1815, 2 Finance, p. 910. 

2 1815. 3 Dallas's Annual Report, December, 1815. 
4 Act, March 3, 1815, 13 Cong., third session, chap. 87. 



240 FINANCIAL HISTORY OF THE UNITED STATES. [1815. 

The loan covered the following issues of treasury- 
notes : — 

Those payable on the 1st of January, 1815, the principal 

and interest of which, due and unpaid, amounted to, $2,799,200 

Later issues . 620,000 

Notes payable almost daily from the 11th of March, 1815, 

to the 1st of January, 1816 . . . . . . 7,227,280 

Those payable from the 11th of January, 1816, to the 1st 

of March, 1816 7,806,320 



$18,452,800! 



On the 10th of March a loan was opened for $12,000,- 
000, with the view, first, of absorbing a portion of the 
treasury-note debt ; secondly, of getting funds for paying 
the unsubscribed arrearages of that debt ; and, lastly, of 
aiding the treasury with a supply of the local currencies 
of different places in some proportion to the probable 
amount of the local demands. 

The offers to subscribe to the loan prior to the 19th of 
April put money and treasury-notes on the same plane ; 
but the offers greatly varied, swinging from eighty-nine 
per cent to seventy-five. Dallas was a very different 
financier from his two immediate predecessors: he quickly 
saw that a new course of proceeding was required, and 
he had boldness enough to enter upon it. He declared 
that neither the justice due to the public creditor, nor a 
fair estimate of the value of the public property, nor an 
honorable regard for the public credit, permitted the loan 
to assume the character of a scramble, shifting in price in 
every town and village of every State, according to the 

1 Dallas's Communication on the Public Debt, March 2, 1835, 2 Finance, 
p. 916. 



1815.] WAR-LOANS. 241 

arbitrary variations of what was called the difference of 
exchange. He declined, therefore, in the first instance, 
all the offers of subscription to the loan. At the same 
time, he declared that offers at the rate of ninety-five per 
cent would be accepted. In proposing this rate the sec- 
retary was moved by several considerations, — the value 
of the stock, the equitable and also the legal claim of 
the holders of treasury-notes, and the real condition of 

the public credit. Numerous offers were made at this 

• 
rate, payable in treasury-notes or money, soon after the 

promulgation of the secretary of the treasury's decision. 
In the District of Columbia the money subscriptions (in- 
cluding the subscriptions of certain liquidated claims on 
the treasury) were successively at ninety-five, ninety-six 
and a half, ninety-seven, and ninety-eight per cent, and 
finally at par. In Baltimore the money subscriptions 
were at ninety-five and ninety-six and a half per cent. 
In Philadelphia all the subscriptions were at the former 
rate. On the 18th of June the price was raised at the 
treasury to ninet} r -eight per cent. No offers, however, 
were made at the increased rate, though they were still 
received at ninety-five and ninety-six per cent. The sub- 
scriptions payable in treasury-notes were made in all 
places at the same rate of ninety-five per cent. When 
Dallas made his annual report at the close of 1815, there 
had been received in money and treasury-notes $9,284,- 
044.38. Such is the history of the war-loans of 1812. 1 

1 For these loans of $80,000,000, the government obtained but $34,000,000, 
after deducting discounts and depreciation. — Report of Com. of Ways and 
Means, April 13, 1830. 



\ 



242 FINANCIAL HISTORY OF THE UNITED STATES. [1807. 



CHAPTER II. 

TAXATION. 

The principal reason why ;the treasury broke down, 
during the war of 1812, was because Congress, in the 
beginning, dared not go deep enough into the pockets of 
the people. Gallatin and others saw, that, if war were 
declared, the resources of the government from imports 
would greatly diminish; yet for a long time Congress 
would not listen to the appeals of the treasury, either to 
increase the duties, or to introduce internal taxes. It is 
true that Gallatin at first hoped to escape from the pain- 
ful necessity of resorting to internal taxation; and per- 
haps it might have been avoided, had Congress promptly 
heeded his advice, and levied higher taxes on imports. 
In his report for 1807, while remarking that it might be 
premature to enter into a particular detail of the several 
branches of revenue which might be selected, in order to 
provide for the interest of war-loans, and to cover defi- 
ciencies in case the existing revenue sho.uld fall below 
$7,000,000, he did, nevertheless, tell Congress that the 
duty on salt, and the Mediterranean duties, could be im- 
mediately revived, and that the duties "on importations 
generally be considerably increased, perhaps doubled, with 
less inconvenience than would arise from any other mode 
of taxation." Indirect taxes, too, he declared, would 



1807.] TAXATION. 243 

doubtless be cheerfully paid as war taxes, if necessary. 
Nor did he fear to remind Congress of direct taxation as 
a fountain whence resources might be drawn to maintain 
the government. 

Congress, however, heeded none of his suggestions, save 
to make inquiry of him concerning the propriety of contin- 
uing the Mediterranean Fund. In his reply, he told the 
Committee of Ways and Means, that, if war occurred, the 
revenue would be so much affected, that additional taxes 
or duties would be required. The deficiency would not be 
felt during that year ; but it would be the year following : 
it was expedient, therefore, to provide for the deficiency. 1 
Congress was not so resolute in any thing as in refusing 
to face the situation. 

Had the duties been doubled in January, 1808, the 
receipts into the treasury for that and the ensuing year 
would have been increased nine or ten million dollars. 
But they were not: consequently, during the year the 
revenues declined, because the embargo which the gov- 
ernment had established was now in operation. Gallatin 
therefore urged an increase of the duties. He proposed 
continuing the Mediterranean Fund, and doubling all 
existing duties on importations. He also suggested the 
propriety of repealing that provision of the embargo 
law which allowed a drawback on articles exported more 
than one year after they had been imported. A modifi- 
cation, it was believed, would check speculations and mo- 
nopolies. The. diminution of importations had afforded 
sufficient profits on most of the articles which had been 

1 Letter to Chairman of Com. of Ways and Means, Dec. 28, 1807, 2 
Finance, p. 263. 



244 FINANCIAL HTSTORY OF THE UNITED STATES. [1810. 

imported; and a provision which would have the effect 
of bringing those things into market, and lessening their 
price, would be beneficial. Another measure recom- 
mended by him was a non-intercourse Act with Great 
Britain. The causes which induced the adoption of a 
partial non-importation Act had ceased to exist. The 
selection of interdicted articles was founded on the 
possibility of obtaining them from other countries than 
England, and did not agree with existing circumstances. 
The Act had only increased the temptations, and created 
habits of smuggling, beside impairing the revenue. ' fc A 
general non-intercourse Act," Gallatin contended, " would 
supersede that partial measure, and might be executed 
with greater facility." Under every event, he added, its 
repeal would be beneficial, and a permanent increase of 
duties on articles selected with reference to those which 
might be manufactured in the United States would be 
preferable. 1 

At this time no internal taxes, either direct or indirect, 
were contemplated, even if hostilities should occur. Ex- 
cept authority to borrow money, and the practice of econ- 
omy in all the departments of the government, nothing 
more appeared necessary to Gallatin " than such modifi- 
cations and increase of the duties on importations as were 
naturally suggested by existing circumstances." 

But Gallatin's recommendations were not heeded. The 
next year, and the year following, they were faithfully 
repeated : still Congress refused to act. 2 As the country 
neared the verge of war, Gallatin's tones grew sharper ; 

1 Annual Report, December, 1808. 

2 Ways and Means Report, Jan. 8, 1810, 2 Finance, p. 412. 



1811.] TAXATION. 245 

but they fell on unlistening ears. American commerce 
was fast disappearing from the ocean; the national reve- 
nues were rapidly declining ; the country was getting 
deeper and deeper into the toils with Great Britain and 
France ; Jefferson was trying the shameful policy of play- 
ing the nation off between these two contending powers, 
firmly believing that either was willing to make almost 
any concession in order to secure its support. In 
truth, neither feared the United States, nor cared' much 
for her influence. Congress became stupid, and mani- 
fested but little vigor, except when the faction opposed to 
Gallatin raised the cudgels to strike him, or plotted in 
secret to secure his overthrow. Thus the revenues con- 
tinued to decline. Deficiencies were covered with the 
proceeds of loans. No new taxes were imposed until the 
close of 1811, when the Committee of Ways and Means 
could no longer evade the question of increasing the rev- 
enue. The chairman (Ezekiel Bacon) was a friend of 
Gallatin; and he asked the secretary several questions 
concerning an increase of the revenue, which drew forth 
an elaborate reply, that finally awakened Congress to a 
realization of the financial peril to which the country was 
exposed. 

Believing, that, if war occurred, not more than $2,500,- 
000 of duties would be received, he declared, "without 
hesitation," that the rate of duties, in the event of war, 
might be doubled without danger or inconvenience. 
Should Congress do this, there would be less danger of 
smuggling than existed at that time. Even thus in- 
creased, they would be less on an average than those 
paid on importations in England, France, and most other 



246 FINANCIAL HISTORY OF THE UNITED STATES. [1811. 

countries. They would be collected with more care by 
the government, and less inconvenience to the people, 
than could the same amount from any other source. 

The long delay to increase the duties on importations 
had necessitated the collection of a revenue from internal 
sources. When Gallatin said, at the close of 1808, that 
no internal taxes, either direct or indirect, were contem- 
plated, even in the case of hostilities against the two 
belligerent powers, a balance of $ 14,000,000, nearly, was 
in the treasury. " Aware that this surplus would shortly 
be expended, and having stated that the revenue was 
daily decreasing, he had proposed that all the existing 
duties should be doubled on importations subsequent to 
the first day of January, 1809." The net revenues accru- 
ing from customs during the three years 1809, 1810, and 
1811, without any increase of duties, had exceeded $26,- 
000,000. If the duties had been doubled, as Gallatin 
desired, there would have been $20,000,000 on hand, — 
a sum greater than that proposed to be raised by internal 
taxes for four years. Moreover, he had expected a re- 
newal of the charter of the United-States bank " in some 
shape, and on a more extensive scale." He had recom- 
mended an increase of its capital to $30,000,000, on the 
condition of loaning one-half of it to the United States. 
The amount might have been easily increased $5,000,000 
more. With $20,000,000, and loans secured for an equal 
amount, "without any increase of* the stock of the public 
debt at market, internal taxation would have been un- 
necessary for at least four years of war, nor any other 
resource been wanted than an additional annual loan of 
$5,000,000, — a sum sufficiently moderate to be obtained 



1813.] TAXATION. 247 

from individuals, and on favorable terms. But, Congress 
having failed to do these things, internal taxation had 
become absolutely necessary. Gallatin proposed to raise 
$ 5,000,000 in this manner, — $3,000,000 by direct, and 
the remainder by indirect taxation. 

Gallatin's letter was a surprise. The patient, cautious, 
long-suffering financier had never uttered such a sharp- 
toned message before. When Smith and Giles and their 
coadjutors came out of the Senate, shortly afterward, they 
appeared to be as astonished and dejected, if we believe 
the ancient story, as were those visiting the cave of Tro- 
phonus when they emerged into the light of day. Yet, un- 
like the priests of old, Gallatin had not excited Congress 
by terrible sounds or apparitions : he had moved the mem- 
bers powerfully by telling them the truth. 

The Committee of Ways and Means made a report to 
the House, embodying faithfully the views of the secre- 
tary of the treasury. The necessity of providing a reve- 
nue " sufficient, at least, to defray the ordinary expenses 
of the government, and to pay the interest on the public 
debt, including that on new loans which might be author- 
ized," was discussed without flinching. At the close of 
the report, the committee proposed a long series of reso- 
lutions, providing for a large increase of all duties on 
merchandise, tonnage, a retention of a portion of the 
drawback on goods exported, a duty on salt, beside levy- 
ing internal taxes to the estimated amount of 16,575,000, 
including stamp-duties on notes. 1 

The report of the committee produced a genuine sensa- 
tion in the House. A fierce debate was opened, in which 

1 Ways and Means Report, Feb. 17, 1812, 2 Finance, p. 539. 



248 FINANCIAL HISTOBY OF THE UNITED STATES. [1812. 

the views of the secretary of the treasury were vehemently 
denounced. A powerful cabal had been formed in Con- 
gress, composed of Democrats who were bitterly opposed 
to Gallatin. The leader was Gen. Smith, a senator from 
Maryland, whose brother was secretary of the navy. 
From the beginning, Gallatin had been opposed to the 
secretary's extravagances. Indeed, as we have seen, some 
of his operations were colored with dishonesty. The 
cabal grew larger and stronger, and more jealous of Galla- 
tin's power ; and they were determined, first of all things, 
to break him down. Jefferson had stood by him for eight 
years, and Madison relied on him even more than his 
predecessor. But Madison was not firm ; and, instead of 
doing his utmost to uphold Gallatin by crushing his ene- 
mies, he strove to preserve good terms with both factions 
of his party, and, in consequence, was fast bringing the 
organization into contempt. He ought not to have re- 
appointed Smith secretary of the navy ; while Eustis, the 
secretary of war, was notoriously incompetent. Madison 
did not strengthen himself as he should in his cabinet. 
He did not try to sustain Gallatin until assistance was 
too late, — until the faction opposed to the secretary 
became strong enough to overthrow him. Yet the Presi- 
dent had long known that Gallatin's enemies were un- 
ceasing in their efforts to drive him from the cabinet. 
Never before had a political faction composed of so few 
men exercised such a potent influence, and with so little 
regard for the welfare of their country. 

Even now, when Gallatin had shown the necessity of 
immediate increase of taxation, and of unanimous and 
hearty co-operation in preparing for war, opposition to 



1813.] TAXATION. 249 

him did not diminish. Wright of Maryland, who be- 
longed to the Smith-Giles faction, thus addressed the 
House concerning the letter we have just described, which 
Gallatin had sent to the Committee of Ways and Means: — 

" Sir, — At the last session, when the question for re-charter- 
ing the odious British bank was before us, we had to encounter 
the influence of the secretary of the treasury. . . . Now, at this 
session, he has told us, that, if we had a national bank, we 
should have no occasion to resort to internal taxes ; thereby 
calling the American people to review the conduct of their rep- 
resentatives in not continuing that bank, and thereby to fix the 
odium of these odious taxes on the national Legislature. Now 
a system of taxes is presented, truly odious, in my opinton, 
to the people, to disgust them with their representatives, and 
to chill the war spirit. Yet it is, under treasury influence, to 
be impressed on the committee of ways and means, and, 
through them, on the House. Sir, is there any thing of origi- 
nality in his system ? No ! It is treading in the muddy foot- 
steps of his official predecessor, in attempting to strap round 
the necks of the people this odious system of taxation adopted 
by them, for which they have been condemned by the people, 
and dismissed from power. . . . And now, sir, with the view 
of destroying this administration, with this sentence of a dis- 
missal of our predecessors in office before our eyes, — a sen- 
tence not only sanctioned, but executed, by ourselves, — we are 
to be pressed into a system known to be odious in the sight of 
the people." 

There was another class who regarded Gallatin's recom- 
mendations for internal taxes with disgust. They were 
his friends, who had acted with him in resisting the execu- 
tion of the laws for the collection of a revenue in Penn- 



250 , FINANCIAL HISTORY OF THE UNITED STATES. [1812. 

sylvania in 1794. His old colleague, William Findley, 
was so deeply shocked at the re-introduction of the excise, 
that he would not even vote for printing his letter to the 
Committee of Ways and Means, which had been written at 
their request. They regarded his conduct as flagrantly 
inconsistent. But surely the situation required the adop- 
tion of a system of taxation not less deep and general than 
the one Gallatin had recommended. 

Indeed, the only error in Gallatin's letter was, he did 
not call for enough taxes. He began by accepting the 
committee's estimate, that loans to the extent of $50,000,- 
000 would carry on a four-years' war. The war lasted 
two years, and a half, and raised the national debt from 
$45,000,000 to $123,000,000, or at the rate of more than 
$30,000,000 a year, — nearly three times the estimate. 

Severe as was Gallatin's dose, the faction opposed to 
him were obliged at last to vote for the taxes, however 
distasteful. The other party was at this time co-operating 
with Gallatin in supporting several of his measures. The 
resolutions favoring the adoption of the new system were 
passed ; and the Committee of Ways and Means were or- 
dered to prepare and report bills for the levying and col- 
lection of the taxes, 1 embodied in the resolutions adopted 
by the House. 2 Unfortunately, the session was nearing 

1 Although there was an excise tax imposed on whiskey, yet the pro- 
duction and consumption were not checked thereby. Said Mr. Stewart of 
Pennsylvania, during the debate in 1824, "I very well remember, that, in 
the district of country I have the honor to represent, there was paid, during 
the late war, a heavy excise ; yet there was never known a period of such 
prosperity to the manufacturer of whiskey. There was twice as much made 
then as there is now." — IS Cong., first session, Cong. Deb., vol. i. p. 1502. 

2 Adams's Life of Gallatin, p. 454. 



1813.] TAXATION. 251 

its close, and not enough time was left to prepare all the 
bills. An additional duty of one hundred per cent to the 
permanent duties imposed by law on imports was added, 
and ten per cent more on goods imported in foreign ves- 
sels, and an additional tonnage duty of a dollar and a 
half per ton on ships owned partly or wholly abroad. 1 
The other measures proposed went over to the next ses- 
sion. 2 Instead of enacting them, Congress granted author- 
ity to the President to borrow money. 

Gallatin's enemies could truly say of him, that the 
system he had proposed was essentially similar to the 
system adopted by the Federal party when in power, and 
which the other had stoutly opposed. It only remained 
for him to suggest the expediency of anticipating the taxes 
by issuing treasury-notes, to complete the reproduction of 
the financial system created by the Federalists, which only 
a few years before he had severely condemned. But his 
altered situation had caused a reversal of his ideas respect- 
ing the management of the public finances. Gallatin the 
critic, free from responsibility, was a very different person 
from Gallatin the official head of the treasury, charged 
with the duty of getting the needed funds to sustain the 
government. 



1 July 1, 1812. These duties were to be collected until one year after 
the conclusion of peace with Great Britain, and, consequently, until Feb. 
17, 1816. The Act, with its several supplements, — imposing an additional 
duty, commonly called the " Mediterranean Fund," of two and one-half 
per cent on all imported goods paying duties ad valorem, and a discrimi- 
nating duty of ten per cent on that additional duty, with respect to all 
goods imported in foreign vessels, — expired March 3, 1815. — Dallas's 
Report on Tariff of Duties on Imports, Feb. 13, 1816, 3 Finance, p. 85. 

2 Ways and Means Report, Feb. 15, 1813, 2 Finance, p. 613. 



252 FINANCIAL HISTORY OF THE UNITED STATES. [1813, 

At the next session, which began in November, 1812, 
and closed the 3d of March the following year, it was 
supposed that all the legislation needed to enrich the 
treasury would be enacted. The tax-bills which had 
been postponed from the previous session, violent as they 
were at first thought to be, were quite unequal to the 
occasion, and stronger measures were needed. But Gal- 
latin had ceased to have any control over the Senate, and 
the House was becoming almost as difficult ■ to manage. 
The 85,000,000 of revenue, which had been unexpectedly 
received from heavy British shipments immediately after 
the revocation of the orders in council, served to increase 
the sluggishness of Congress. Nor did the course of 
Cheves, who was now chairman of the Committee of Ways 
and Means, contribute to the success of the treasury. 1 
He wished to force Congress to raise a revenue by aban- 
doning the non-importation system, which was still main- 
tained as a coercive measure against Great Britain. But 
Congress refused to grant relief in this way, while that 
body was equally averse to touching the tax-bills. So 
the session wore away without doing any thing what- 
ever in this direction, save to lay a small duty on 

1 Eleven days after our government had declared war, and without 
knowing its action, the British Government revoked its orders in council, 
which had been the chief source of grievance in America. As soon as the 
revocation occurred, large quantities of merchandise were shipped from 
Great Britain on the faith of the Act of Congress of March 2, 1811, which 
promised a renewal of intercourse whenever those orders should he re- 
voked. Even after the declaration of war became known, these shipments 
continued protected by British licenses from British cruisers. The amount 
of merchandise thus imported was nearly $40,000,000, and the duties col- 
lected were about one-eighth of that sum. — Adams's Life of Gallatin, 
p. 472. 



1813.] TAXATION. 253 

iron wire, — an inglorious termination, surely, of the 
efforts of Congress, in view of the gloomy truth that 
the country financially was rapidly sinking so low as 
to alarm every one having any regard for its honor and 
safety. 1 

The needs of the treasury became so great, and the 
reliance on public credit grew so hazardous, that a special 
session of Congress was called to adopt relief. The foun- 
dation of a system of internal revenue was now laid. 
The objects selected for taxation were those which the 
experience acquired from the former experiment recom- 
mended as the most fitting. A series of measures was 
passed, the first of which related to the assessment and 
collection of direct taxes and internal duties. The 
amount which Congress expected to raise from this source 
was $5,000,000. The continuance of these taxes was 
limited at first to one } r ear after the termination of the 

1 During the war, numerous forfeitures occurred; but the most interest- 
ing question growing out of them took place when a large number of 
vessels were seized shortly after the breaking-out of the war. Those which 
had left the ports of Great Britain in good faith, belonging to Americans, 
before the declaration of war was known, and subsequent to the suspension 
or the non-intercourse Act, were released, on giving a bond to the treasury 
for the A'alue of their cargoes. But the secretary was at a loss, under these 
peculiar circumstances, whether to remit or exact the forfeitures incurred. 
He referred the matter to Congress, but expressed the opinion, that, under 
the circumstances, one half the forfeitures due to the collectors ought to be 
remitted, and the other half, or its equivalent, exacted. 

The subject furnished fuel for a hot debate. Langdon Cheves, chairman 
of the Committee of Ways and Means, led the Federalists in a vigorous 
assault upon the treasury. Jonathan Roberts of Pennsylvania, who was 
also a member of the same committee, defended the views of Gallatin. In 
the end, Cheves triumphed, and the forfeitures were entirely remitted by 
the very close vote of 63 to 61. — Adams's Life of Gallatin, p. 472. Ways 
and Means Report, Nov. 25, 1812, 2 Finance, p. 570. 



254 FINANCIAL HISTORY OF THE UNITED STATES. [1813. 

war, and they were called the " war. taxes." By subse- 
quent laws almost all the existing revenues were pledged 
toward defraying the expenses of government, paying 
the public debt (principal and interest), and creating an 
adequate sinking-fund gradually to reduce, and eventu- 
ally to extinguish, the public debt, until those purposes 
should be accomplished, or until Congress should provide 
and substitute by law, for the same purposes, other duties 
equally productive. A direct tax of 83,000,000 was laid 
and apportioned to the States, respectively, for the year 
1814. A duty of four cents per pound was laid on all 
sugar refined within the country. An annual duty was 
imposed on carriages for the conveyance of persons, which 
was graduated from twenty dollars to one-tenth of that 
sum. The distillers of spirituous liquors were required 
to pay duties on licenses, the amount of which depended 
on the capacity of the still, the time of using it, and the 
materials consumed. The retailers of wines, spirituous 
liquors, and merchandise, were also required to pay a 
license, the amount of which varied with the place of 
retailing, and the nature of the thing sold. A duty was 
laid on sales at auction, of merchandise and of ships and 
vessels, at the rate of one per cent of the purchase-money 
of goods, and of twenty -five cents for every hundred dol- 
lars of the purchase-money of ships and vessels. A duty 
was laid on the notes of banks and bankers, on bonds, 
obligations, or promissory notes discounted by banks or 
bankers, and on foreign and inland bills of exchange 
above fifty dollars, and having one or more indorsers, 
graduated by the nominal amount of the instrument. 
Beside these direct and internal taxes, a duty of twenty 



1814.] TAXATION. 255 

cents per bushel was imposed on salt imported into the 
United States. 1 

Large as was the increase of taxes, the income of the 
government fell far below its expenditures. In Septem- 
ber, the year following, the secretary of the treasury 
announced that the direct tax had produced considerably 
less than the amount expected, and that, to provide for 
the wants of the government, Congress must consider 
the expediency of increasing that tax, as well as the 
present internal duties, and also what new objects of 
taxation could most advantageously be subjected to the 
burden. The government had failed to borrow all the 
money needed ; and the secretary considered the necessity 
of changing the plan of finance adopted at the outset of 
the war, and of raising money by taxes, to bear a portion 
of the extraordinary expenditure which the government 
was now incurring. " This would have a tendency," he 
said, " to insure public confidence, and preserve and con- 
firm public credit." 2 

Eppes, the son-in-law of Jefferson, was chairman of the 
Committee of Ways and Means. He was not a brilliant 
man, and his knowledge of finance was scanty. His 
committee adopted the views expressed by the secretary 
of the treasury. Additional taxation was declared neces- 

1 During the debate on the internal revenue hill in 1793, an additional 
clause was proposed, preventing inspectors from interfering, directly or 
indirectly, in elections, beyond giving their own votes. Their power was 
feared. The amendment, however, was not adopted, though receiving a 
large number of votes (Ann. of Congress, 1 Cong., p. 1876). Even the 
strongest opponent of an internal revenue bill in 1814 was haunted with no 
such fear. 

2 Report to Congress, Sept. 26, 1814. 



256 FINANCIAL HISTORY OF THE UNITED STATES. [1814. 

sary. In embodying this conclusion in a tax-law, the 
committee said they had been careful to put the burden 
equally on every portion of the community. The report 
recommended much heavier ^taxation of the manufac- 
turing than of the agricultural interest, based on the 
following reasoning : " in Europe the price of agricul- 
tural products is not materially affected by a state of 
war: the produce of the earth is there consumed within 
the country, in peace and in war. The situation of the 
United States is totally different. With an extensive and 
fertile country, and a small population compared to the 
extent of our territory, we have annually a large surplus 
to export to foreign markets over and above what is 
necessary for consumption. On the export of this sur- 
plus, which is cut off by war, depends, in a great degree, 
the ability of the farmer to meet taxes. While, however, 
war depresses the agricultural interest, it gives vigor to 
various manufactures. By destroying all foreign compe- 
tition, the war has brought many of these manufactures 
to a state of perfection, which will secure their successful 
prosecution, even after peace shall be restored. In times 
of real difficulty and danger, we must appeal to the 
patriotism of every class of our citizens. These estab- 
lishments, under the fostering hand of the government, 
have grown to maturity, and will not hesitate to bear, 
with the agricultural interest, their portion of the taxes 
necessary to maintain unimpaired that character for 
punctuality and good faith for which the American Gov- 
ernment has heretofore been distinguished." The com- 
mittee then recommended a heavy increase of all the 
taxes previously laid, beside new ones on manufactures, 



1814.] TAXATION. 257 

furniture, watches, and other articles. 1 Subsequently 
Dallas, the successor of Campbell as secretary of the 
treasury, supported these recommendations. 2 

The House accordingly proceeded to consider the rec- 
ommendations contained in the report. The resolutions 
embraced therein covered a wide field, and Congress first 
considered the stamp-duty to be paid by bankers. The 
Act of the previous year had provided that the secretary 
of the treasury could make an annual composition with 
any banks or companies, in lieu of the stamp-duty. The 
amount to be given was one and a half per cent on 
the amount of the annual dividend paid by those institu- 
tions to their stockholders. But the Act did not apply 
to the banking operations of individuals ; and Stephen 
Girard, and others also who were engaged in a private 
banking business, were desirous of having the law made 
broad enough to cover them. The defect was an obvious 
one, and Congress did not hesitate to pass the amend- 
ment desired. 3 

The next measure increased the duties on carriages, 
and changed the mode of laying them. The duty on no 
object of internal taxation had been collected with so 
much difficulty as the duty on carriages, either under the 
old or the existing system, between which there was con- 
siderable resemblance. It was plain that the duty was 
extremely unequal. So great was the inequality, that the 
small sum of two dollars, the lowest tax, was frequently 

i Ways and Means Report, Oct. 10, 1814, 2 Finance, p. 854. 

2 Letter to Chairman of Committee of Ways and Means, Oct. 18, 1814, 
2 Finance, p. 866. 

3 Girard's Letter to Congress, Oct. 26, 1814, 2 Finance, p. 869. 



258 FINANCIAL HISTORY OF THE UNITED STATES. [1814. 

paid on carriages of greater value than those which had 
paid four or five times that amount. This inequality 
proceeded from an erroneous principle of classification. 
This was the kind of springs used, and which were rarely 
a true criterion of their value. It was clearly seen, there- 
fore, that the duty ought to be graduated by the value of 
the carriage ; for no classification founded on name or 
form could equalize the duty. 1 So the law was changed, 
and the rate of duty was based on the valuation of the 
carriage. Those which were exclusively employed in 
husbandry, or in transporting goods, were exempt from 
the operation of the law : indeed, they had been, under 
all previous enactments. A duty on harnesses also was 
added. 

An attempt was made to tax salaries; but this failed, 
the Committee of Ways and Means remarking, that, " in 
the United States, according to the principles of our gov- 
ernment, no salary can be allowed, except as a compen- 
sation for public service. A tax operates as a deduction 
from the salary; and such a tax, as far as respects the 
officers of the United States, would be an admission, on 
the part of the legislative body, that, in fixing the sala- 
ries of their public officers, the public interest had been 
disregarded, and more than a just compensation allowed." 
It had been proposed to tax the income of lawyers, 
solicitors, and counsellors. To this proposition the com- 
mittee replied, that to select a particular class of the com- 
munity, which already paid, in common with others, a 
tax on property and on consumption, and impose on 
its members an income tax from which every other class 

1 Smith's Letter to Secretary of Treasury, Nov. 15, 1814» 



1815.] TAXATION. 259 

was exempt, would be a departure from that system of 
equal and exact justice which ought to form the basis of 
legislation in a free country. It was also proposed to tax 
the legal proceedings of courts. " This tax," said the 
committee, "if confined to the courts of the United 
States, would be unproductive ; if extended to the State 
courts, difficult in the collection. It would fall princi- 
pally on the necessitous and unfortunate, and produce 
collision with the State authorities." These propositions, 
therefore, did not receive the sanction of the committee, 
and were not embodied in legislation. 1 

The direct tax was raised to an annual sum of six 
million dollars, and was extended to the District of 
Columbia. The duty on licenses to distillers of spiritu- 
ous liquors was continued, and a duty on spirits distilled 
was added. The duties on sales at auction, and on 
licenses to retail wines, spirituous liquors, and foreign 
merchandise, were raised. The rates of postage were in- 
creased fifty per cent. 

New duties were permanently laid on a large variety 
of manufactures, and pledged for the payment of the ex- 
penses of the government and the public indebtedness. 
Congress, however, declared, that, as long as these duties 
were imposed, the duties payable on similar goods im- 
ported into the United States should not be discontinued 
nor diminished. As previously mentioned, duties were 
also laid on household furniture, and gold and silver 
watches. Furthermore, the secretary of the treasury was 
authorized to anticipate the collection of the duties laid 
on spirits distilled within the country, and the licenses on 

1 Ways and Means Report, Dec. 3, 1814, 2 Finance, p. 873. 



260 FINANCIAL HISTORY OF THE UNITED STATES. [1815. 

the capacity of the stills, by obtaining a loan for six mil- 
lion dollars at six per cent interest. He was to apply 
the money, however, for the same purposes as the duties 
had been pledged. 

This series of Acts completed the legislation of Con- 
gress for providing revenues to maintain the government, 
and continue the war with Great Britain. The great 
blunder of Congress had been in delaying so long to 
take the steps which were finally taken. Had the reve- 
nues on imports been increased at the time Gallatin 
desired, internal taxation might have been avoided alto- 
gether ; for enough money would have flowed into the 
treasury from importations to discharge the ordinary 
obligations of the government, and the funds required 
for extraordinary expenditure could have been easily and 
advantageously borrowed. But by delaying to tax, the 
credit of the government was prostrated, and then there 
was no escape from increased taxation. In truth, Con- 
gress did not awaken to the seriousness of the situation 
until public credit was ruined, and until no money could 
be borrowed to carry on the government. The path 
which Congress ought to have followed was as clear to 
Gallatin and some others, in the beginning, as it was to 
every one in the end. By refusing to take it, lamentable 
consequences occurred, for which there was no excuse 
nor palliation. 



1811.] THE CIRCULATING MEDIUM. 261 



CHAPTER III. 

THE GOVERNMENT, AND THE CIRCULATING MEDIUM. 

The charter of the first United-States bank expired in 
1811, and the second one began business in February, 
1817. During the interval the money in circulation was 
poor enough. The notes issued by the first national bank 
had been willingly received everywhere, for their redemp- 
tion was never questioned. In its vaults there always 
lay more specie than was needed to redeem every note. 1 
Never before had the country been favored with a paper 
money so nearly perfect. Moreover, by refusing to re- 
ceive the bills of other banking institutions of questioned 
solvency, the national bank exercised a healthful influ- 
ence in restraining their issues. 

When the charter of the national bank expired, its 
notes were withdrawn, and the notes of State banks were 
put into the chasm. These institutions rapidly multi- 
plied, for great profits were expected from the business. 
During 1811 and the two succeeding years, one hundred 
and twenty banks were chartered, and went into opera- 
tion. 2 Gov. Snyder of Pennsylvania had the courage to 
veto a bill authorizing a wholesale creation of banks in 

1 Crawford's Report on Banks and the Currency, Feb. 24, 1820, 3 Fi- 
nance, p. 494. It never issued notes for a smaller sum than ten dollars. 

2 Gouge's Short History of Paper Money and Banking, chap. 7. 



262 FINANCIAL HISTOEY OF THE UNITED STATES. [1811. 

that State. 1 They were scattered everywhere, and added 
nearly thirty million dollars of banking-capital to the 
amount previously existing. But there was no addition 
of real capital. The truth of this statement will appear 
when their mode of raising capital is described. The 
first instalment was paid; and then the banks were 
organized, and discounted stock-notes to meet the sub- 
sequent payments. Of course, the practice was soon 
discovered. Issued in this manner, the entire body of 
circulating medium, except the issues of the New-Eng- 
land banks, began to depreciate. So far below par did 
their value fall, that confidence was unsettled in their 
future convertibility. 

This increase of bank-notes occurred on the eve of war, 
during the earlier period of which, exports were almost 
annihilated, and also the foreign and coasting trade. As 
only a small portion of tin's manufactured capital could 
be loaned to mercantile enterprises, considerable sums 
were invested in government loans. Finding a good 
demand in this quarter, bank-notes rapidly multiplied. 2 

1 A writer who reviewed Gov. Snyder's veto, in a pamphlet entitled 
Remarks on Paper Money and the Bank Paper of the United States, 
regarded the document "as a solemn protest — accompanied with clear, 
cogent, and convincing reasons — against a growing evil, which, if not 
arrested, will destroy public confidence, and will consume the wealth of 
the opulent with the pittance of the poor." — p. 30. 

2 Gallatin's Considerations on the Currency and Banking System, Writ- 
ings, vol. iii. pp. 284-287. Arrangements were made with several banks 
for accommodations at reduced interest, provided the borrowers would 
continue in circulation an amount in notes similar to their loans; "and it 
is a well accredited fact, that considerable premiums were allowed to pay- 
masters by the banks during the war, on condition that they would circu- 
late their small notes in payment to the troops" (Curthts to secretary of 
the treasury, on a National Currency, p. 14). The same authority, writing 



1813.] THE CIRCULATING MEDIUM. 263 

The eastern banks, however, did not subscribe so lib- 
erally to them, because the war in that section was un- 
popular ; but elsewhere they subscribed very freely, and 
made discounts to individuals who did likewise : while 
others withdrew their deposits, and loaned them to the 
government. These transactions greatly swelled the vol- 
ume of paper money. 1 

The indiscretion of the banks — chiefly in Baltimore, 
Philadelphia, and New York — in thus expanding their 
issues was inexcusable. They knew that their specie 
was leaving them, and that vast quantities were going to 
Great Britain. The New-England banks were liable to 

in 1816, says, " Many of these institutions have doubled their capitals, and 
most others have made fifty per cent since the declaration of war, exclu- 
sive of their speculations in the public funds " (Ibid., p. 11). 

1 N. Am. Rev., vol. xxxii. p. 46. Senator Kent of Maryland delivered 
a speech before the United-States Senate in 1834, in which he stated some 
interesting facts concerning the ill effects of this " experiment upon the 
currency." He was in Congress during the war, and " well remembered 
the ruinous consequences " that resulted from the experiment. The paper 
money issued by the banks " continued to depreciate until it became so 
worthless, that the members of Congress refused to receive it in payment 
of their per-diem allowance. They were paid in treasury-notes, and drafts 
on northern banks, where specie payments had never been discontinued , 
and those were sold for a premium, which was pocketed by the members, 
whilst their constituents were obliged to receive the depreciated paper 
money in payment for their hard earnings. What the people individually 
lost, and what the government lost during the five years that this first 
experiment was going on, and which embraced the whole period of the 
late war, I will not attempt to estimate. We know that there is enough 
of the trash of that day now remaining in the public treasury, called una- 
vailable funds, which, with the interest added to it, would be sufficient to 
complete the Chesapeake afid Ohio Canal, the Baltimore and Ohio Rail- 
road, and the Delaware Breakwater, — three great and magnificent public 
works intimately connected with the future prosperity of the country." — 
Incidents mLife of Jacob Barker, p. 99. 



264 FINANCIAL HISTORY OF THE UNITED STATES. [1814. 

a penalty of two per cent a month for the non-pay- 
ment of their notes. This regulation produced a good 
effect; for their notes maintained their full value, even 
when those of other sections were depreciated. The 
difference between the New-England prices of commodi- 
ties, stocks, and foreign bills of exchange, and those 
of Pennsylvania, was the measure of the depreciation 
of the currency of the latter , and as " our bank-notes," 
says Gouge, writing from Philadelphia, " were redeemable 
on demand, the most profitable remittance which could 
be made to New England, in exchange for her commodi- 
ties, was specie." 1 

The banks in the Southern and Middle States having 
been emptied of their specie, the capture of Washing- 
ton, in August, 1814, caused them to fail. Those at the 
capital fell into the hands of the enemy, but there was 
scarcely any thing in them. Already were the banks on 
the brink of ruin. Those at Baltimore soon gave way. 
The wave spread northward. The six at Philadelphia 
fell next, whereupon their several presidents gravely and 
gladly advertised that coin could be no longer paid. 
Heavy importations of foreign goods into eastern ports, 
they affirmed, had drawn their specie thither ; and the 
drain had been increased by an unusually large trade in 
British bills of exchange, which had caused heavy sums 
to be exported from the United States. 2 The following 

i Short History, p. 254. 

2 " From the location of the armies at that period, a very great propor- 
tion of the bank circulation taken by the government was issued in New- 
York, which found its way to the eastern banks. Great balances thus 
accrued in their favor against the banks in the city of New York, which, 
in their turn, became creditors of more southern institutions. The liqui- 



1814.] THE CIRCULATING MEDIUM. 265 

day the New- York banks suspended ; but those in New 
England withstood the pressure. 1 One of them, which 
had speculated too largely in the paper of the govern- 
ment, it was feared, would succumb ; but, relieved by 
rivals, its credit was saved. 

The broken banks, 2 though refusing to redeem their 
notes, professed their desire and ability to do so at an 
early day. The commercial world, however, was not 
seriously shaken ; for the legal money, gold and silver, 
remained the standard of value. That standard the 
banks could not change : indeed, the influence of its 

dation of these balances -was necessary to all who held them, and, of 
course, demanded. This occasioned a general movement of specie to the 
North, which continued till every bank south of New England was ex- 
hausted " (Letter to Secretary of Treasury on Commerce and Currency of 
United States, by Aristides, p. 6). For full account of specie movements, 
see chapter on National Bank, p. 153. 

1 So did the Bank of Nashville until August, 1815, "the sturdy history 
of whose directors, amid such general knavery, is not less praiseworthy 
than it is remarkable." —History of Banks, Boston, 1837, p. 59. 

2 " In 1813, when gold and silver were paid on demand, the currency of 
the United States, without including specie in the vaults, was about 
seventy millions, of which sixty-two millions were in bank-notes. Such 
was its rapid increase, after the withdrawing of the salutary check,— the 
liability to pay gold and silver, —that in 1815, only two years afterwards, 
it amounted to one hundred and ten millions." This is the statement of 
William B. Lawrence (N. Am. Rev., April, 1831, Reprint, p. 26), who fol- 
lowed Crawford's estimate, which was adopted by the Committee of Ways 
and Means, as the basis of their calculations (see Crawford's Report on 
the Bank of the United States and other Banks, and the Currency, Feb. 
24, 1820, 16 Cong., first session, — the ablest and most elaborate paper that 
Crawford ever prepared). Gallatin, eleven years afterward, made a lower 
estimate, which is probably more accurate. He affirmed that the capital 
of the State banks existing in 1790 amounted to $2,000,000, and that in 
January, 1811, just before the charter of the United-States bank expired, 
there were eighty-eight State banks, possessing a capital of $42,610,000 



5-66 FINANCIAL HISTORY OF THE UNITED STATES. [1814. 

fixedness was never more extensive or salutary. Bills 
of doubtful credit were compared with it, and their 
value was ascertained. They became a merchantable 
commodity, and were often purchased with legal coin. 
They were daily sold at a discount, which was regularly 
announced in the newspapers: they were even sold at 
public auction, the purchaser paying in legal money. 

The prices of merchandise and exchange corresponded 
to the depreciation. Tea, coffee, and every article of com- 
merce, had only one value; though that was expressed 
differently if payment were made in bank-notes instead of 
coin. When the depreciation was twenty per cent, eighty 
dollars of silver would buy all that could be procured for 
one hundred dollars in the depreciated paper. If the 
seller could not at first perceive this, the buyer went to 
a broker with his silver, and bought bank-bills at the dis- 
count price. The note which purported to be one dollar 
was, in fact, but eighty cents; and this was universally 
known, so that no deception was practised in paying or 
receiving it. 

Nevertheless, the inconvenience of such a circulating 
medium was very annoying. Except in the New-England 



(Writings, vol. iii. p. 286). From various data, and guided partly by 
analogy and partly by the respective dividends of the banks, Gallatin 
constructed the following table: — 







Capital. 


Notes in 
Circulation. 


Specie. 


Jan. 1, 1811. 

1815. 
1816. 


Bank of the United States, 
88 State banks 

Total 

208 State banks .... 
246 State banks .... 


$10,000,000 
42,610,601 


$5,400,000 
22,700,000 


$5,800,000 
9,600,000 


$52,610,601 

82,259,590 
89,822,422 


$28,100,000 

45,500,000 
68,000,000 


$15,400,000 

17,000,000 
19,000,000 



1814.] THE CIRCULATING MEDIUM. 26? 

States, scarcely two towns had the same money. "In 
the Southern and Western States the depreciation in some 
instances exceeded even twenty-five per cent. Not only 
was an accurate knowledge of the nominal exchange of 
the day necessary, before making purchases at a distant 
place, but a traveller proceeding from the south or west 
towards the north or east, if he were so fortunate as to 
have his money received at all, could not adjust his 
reckoning at an inn till an abstruse calculation was made 
of the discount to which his bank-notes were to be sub- 
jected, or till he had recourse to the interposition of a 
broker." 1 j 

Great as was the inconvenience of using such a circu- 
lating medium, no serious losses occurred. Unfortunately, 
the secretary of the treasury believed that depreciated 
bills should be received without discount, not in payment 
of loans only, but also in payment of duties and other 
taxes. 2 Where the government could not get legal money, 
it accepted discredited paper. It hoisted the sign on 
its custom-houses, and in the offices of its tax-gatherers, 
" Bills of broken banks received here." Is it singular that 
bank-notes then multiplied ? The crier was sent into the 
cities to shout at the corners of the streets, and in the ears 
of the money-changers, " Depreciated paper borrowed by 
the government at par value ! " Thenceforth, a premium 
was set on depreciation ; and cities, seeking their interest, 
vied with each other in debasing their local currency. 

1 N. Am. Rev., vol. xxxii. p. 546. 

2 The action of the secretary of the treasury in receiving hank-notes 
for loans and taxes, during the war of 1812, was severely condemned by 
the Dem. Rev., vol. ii. p. 121. 



268 FINANCIAL HISTORY OF THE UNITED STATES. [1814. 

One ill effect of this action of the government was to 
draw importations to the port where paper money pos- 
sessed the least value ; namely, Baltimore. The mercan- 
tile wealth of the country anchored at its wharves, and its 
streets resounded with the din of business which right- 
fully belonged to other cities. " The practical favoritism 
of the government," says Ingersoll, " transferred the 
warehouses of the Boston and Charleston merchants to 
the wharves of Baltimore ; and though every individual 
could protect himself, and did protect himself, against the 
depreciation of paper, yet there was no redress against 
the injustice of the government. Different rates of duties 
were virtually exacted in different parts of the Union. 
Till treasury-notes fell, Boston paid the highest. This in 
itself was a wrong. But, further, the amount of business 
in Boston was naturally diminished ; for merchant-vessels 
sailed for the port where the costs were least. Thus the 
possession of solid capital, which should have put Boston 
on vantage ground, operated so far to its injury ; and the 
very circumstance which should have attracted trade, ex- 
erted only the attraction of repulsion." 

It was at this time that Dallas drew the following picture 
of the monetary affairs of the government : " The recent 
exportations of specie have considerably diminished the 
fund of gold and silver coin; and another considerable 
portion of that fund has been drawn by the timid and the 
wary, from the use of the community, into the private 
coffers of individuals. On the other hand, the multiplica- 
tion of banks in the several States has so increased the 
quantity of paper currency, that it would be difficult to 
calculate its amount, and still more difficult to ascertain 



1814.] THE CIRCULATING MEDIUM. 269 

its value, with reference to the capital on which it has 
been issued. But the benefit of even this paper currency 
is in a great measure lost ; as the suspension of payments 
in specie, at most of the banks, has suddenly broken the 
chain of accommodation that previously extended the 
credit and the circulation of the notes which were emitted 
in one State into every State in the Union. It may in 
general be affirmed, therefore, that there exists at this 
time no adequate circulating medium common to the citi- 
zens of the United States. The moneyed transactions of 
private life are at a stand, and the fiscal operations of the 
government labor with extreme inconvenience." 2 The 
picture may be completed by adding that the country 
was flooded with bank-note counterfeits ; and these heigh- 
tened the distrust of the people in the entire mass of the 
bank circulation. 

The sudden determination of the banks to suspend 
specie payments, including those which held the public 
deposits, deprived the government of the use of its gold 
and silver, without assent on the part of the treasury. The 
equally sudden determination of the banks everywhere to 
refuse credit and circulation to the notes issued in other 
States, deprived the government of the only means exist- 
ing for transferring its funds from the places where they 
lay inactive to the places where they were wanted, for 
the payment of dividends on the funded debt, and the 
discharge of treasury-notes. That the bank-credits of 
the government would soon be exhausted in Boston, New 
York, Philadelphia, and in other places where were the 

1 Dallas's Letter to Chairman Com. of Ways and Means, Oct. 17, 1814, 
2 Finance, p. 866. 



270 FINANCIAL HISTORY OF THE UNITED STATES. [1814. 

principal loan-offices for the payment of the public debt, 
was inevitable. Nor could the government meet its en- 
gagements in those cities, unless the public creditors would 
receive drafts on banks in other States, or would subscribe 
the amount of their claims to a public loan, or would 
accept payment in treasury-notes. 

With this unfavorable prospect before him, Dallas 
applied to the banks for assistance. It was not unrea- 
sonable to hope, that, having caused the existing embar- 
rassment, they would cheerfully attempt to relieve the 
treasury. Every previous reqrest for aid from them had 
been denied. Nevertheless, he requested those which 
had acted as agents of the treasury to assist the govern- 
ment with the means to discharge the treasury-notes, and 
to pay the dividends due on the public debt for a quarter 
at the loan-offices of their respective States. A great por- 
tion, both of the treasury notes and loans, belonged to the 
banks , and to that extent a protracted credit only was 
required. The balance of the demand he expected would 
be paid, if at all, in the notes of the respective banks. 
To secure and satisfy such advances, he proposed that the 
banks should be admitted on reasonable terms* to sub- 
scribe to a loan of three million dollars, or should re- 
ceive treasury-notes, or bank-notes, or drafts on banks in 
other States. If any bank preferred to accommodate the 
government with a temporary loan bearing legal interest, 
it would be accepted. From these sources Dallas hoped 
to get relief, but failed, as enough banks would not co- 
operate to render the plan successful. 1 He did succeed, 
however, in getting the money needed to pay the most 

1 Dallas's Letter on Loans, Dec. 5, 1814. 



1814.] THE CIRCULATING MEDIUM. 271 

pressing obligations by selling a considerable quantity of 
government stock. 

Near the close of 1814 the treasury was so low, that 
the committee of claims seriously thought of recommend.- 
ing that all claims whose validity should be determined 
by Congress should be paid in public stock or treasury- 
notes. Dallas happily checked their inchoate action by 
suggesting that "it might be injurious to the public 
credit." i 

When the banks suspended specie payments in the 
summer of 1814, the treasury-notes were poorly fitted to 
iill the place occupied by the bank circulation. 2 What, 
therefore, could the government do for a circulating me- 
dium ? Of gold and silver, the greater portion had been 
exported. The notes of the State banks were not redeem- 
able, and passed in many places at varying rates of dis- 
count. If the government had restricted the payment 
of the revenue to constitutional money, gold and silver, 
or to treasury-notes, or to bank-notes payable on demand 
in coin, the step would have operated as a denial of the 
means for paying the duties and other taxes at the very 
crisis when money was most wanted. Nor could any such 
limitation be imposed with respect to the loans required. 
A subscription in coin could not be expected. A subscrip- 
tion in treasury-notes could not yield any active aid for 
general purposes; and, consequently, a subscription in 
the local currencies of the several States was the chief 
resource for procuring supplies, and for discharging the 

1 Letter to Com. of Claims, Dec. 19, 1814, 2 Finance, p. 883. 

2 Dallas's Letter to Com. of Ways and Means, Dec. 2, 1814, 2 Finance, 
p. 877. 



272 FINANCIAL HISTORY OF THE UNITED STATES. [1815. 

public engagements. " Under a sense, therefore," says 
Dallas, " of the necessity which seems for a time to have 
reconciled the whole nation to the suspension of payments 
in coin, the treasury continued to receive bank-notes in 
satisfaction of every public claim and demand ; and Con- 
gress, after a session of six months, adjourned on the 3d of 
March, 1815, without intimating any objection, or making 
any provision upon the subject." 1 Nevertheless, the gov- 
ernment should have received the bank circulation at its 
true value, as merchants did in the beginning. Had this 
position been taken and maintained by Dallas's prede- 
cessors, the embarrassments of the treasury would net 
have been so severe. A different path having been 
chosen, Dallas could not do otherwise than walk therein, 
for a time at least, until he could find a better way. 

By the rule he first established, the treasury received 
and paid in the notes of banks circulating at par at the 
respective places of receiving and paying. For a time, 
the circulation of such notes was indicated by the banks 
employed as the depositories of the public revenue by 
crediting them as cash in the accounts of the United- 
States treasurer; but after a short period the principal 
banks refused to do this, except the notes they had 
respectively issued. What notes circulated at par could 
then be ascertained only by inquiry. Few notes, except 
those of the local banks, continued to circulate at par 
value ; and such as did were received by the banks for 
safe keeping, as a special deposit, constituting a discredited 
fund on which the treasurer could occasionally draw. 

1 Letter to Chairman of Com. on National Currency, March 19, 1816, 
3 Finance, p. 116. 



1815.] THE CIRCULATING MEDIUM. 273 

The operation of this measure was severe in many of 
the collection districts, particularly in the States where 
the banks which were preparing to resume specie pay- 
ments had so reduced the issues of their paper as to 
render the quantity circulating insufficient for the de- 
mand. But the secretary of the treasury could not wisely 
change the rule. If notes not circulating at par had 
been received in one district, a similar practice must 
have been observed in every other. The inevitable con- 
sequence of such a practice would have been the payment 
of taxes everywhere in the most depreciated paper , and 
the notes thus received never could have been employed 
to discharge the demands on the treasury, even at the 
places of receiving them. The revenue would have accu- 
mulated only to be wasted, while the expedient of sub- 
stituting treasury-notes to meet the public engagements 
would have led to an enormous increase of the national 
debt. 

Another serious consequence followed the discredited 
paper circulation. The secretary of the treasury was 
compelled to augment the amount of the national debt, 
both funded and floating, by issues of treasury-notes, to 
meet the public engagements at places where he could 
not command the local currency. Throughout the East- 
ern States the secretary failed to get enough local currency 
to meet the local demand. The banks of those States, 
fettered by their charters, could not follow the example 
of banks elsewhere in suspending coin payments : con- 
sequently their issues of notes were very limited, and 
the circulating medium required was supplied, principally 
by treasury-notes, and partly by the notes of the banks 



274 FINANCIAL HISTORY OF THE UNITED STATES. [1815. 

of New York. Under these circumstances the revenue 
in the eastern section of the Union was almost entirely 
collected in treasury-notes. Lesser difficulties, springing 
from similar causes, occurred in some of the Southern 
States, where the accruing revenue was less than the de- 
mands caused by the arrearages of war and the current 
expenditures. 

The condition of the circulating medium required the 
secretary of the treasury to perform a very difficult task. 
The amount of revenue collected varied much in differ- 
ent places; and not infrequently it happened that the 
debts were greatest where the government had the least 
monej^ *° satisfy them. So far as practicable, warrants 
were paid at the places where services were rendered, or 
supplies were furnished. But if the treasury possessed 
no funds at such places, the differences of exchange 
caused no little difficulty in locating the payment of war- 
rants in an equitable, impartial, and satisfactory manner. 
Gradually the difficulty passed away, except in New Eng- 
land, where it remained for a long time to vex the secre- 
tary of the treasury. It was fiscally impossible to pay 
all the demands on the treasury at one place ; and every 
holder of a warrant was desirous of receiving payment 
where the medium was of the highest current value. 

The condition of the circulating medium seriously 
affected the management of the business of the treasury 
in another way. The banks employed as depositories 
of the public funds were necessarily increased, notwith- 
standing the injurious consequences to the government. 
As soon as the differences in the current value of bank- 
notes were introduced, and particularly when one bank 



1815.] THE CIRCULATING MEDIUM. 275 

refused to credit as cash a deposit of the notes of another, 
the secretary was obliged, either to take the hazard of 
accumulating masses of revenue in the hands of indi- 
vidual collectors and receivers, or to recognize as places 
of deposit banks established in the districts which were 
not affected by the course of the exchanges. The latter 
measure was adopted, instructions were issued to the 
collectors and receivers to act accordingly, and the num- 
ber of banks thus employed by the government swelled 
to ninety-four. 

Not only were the difficulties of the treasury depart- 
ment enhanced by multiplying the places of deposit, but 
there was greater complexity in keeping the accounts 
arising from the various kinds of notes in circulation, on 
some of which minute calculations must be made. It 
was necessary to keep four accounts with each bank, — an 
account of cash, which meant, in the absence of coin, the 
local currency; an account of special deposits of bank- 
notes, which were notes issued by other banks than the 
depository; an account of special deposits of treasury- 
notes bearing interest ; and a fourth account of deposits 
of small treasury-notes not bearing interest. 

Such were some of the difficulties encountered by the 
government from the suspension of specie payments by 
the banks. Dallas made every effort which his bold and 
vigorous mind could suggest to relieve the treasury from 
its embarrassments ; but he was obliged to tell Congress, 
at the close of 1816, that his successive attempts had not 
been effectual. There was no magic in a mere treasury 
instruction to the collectors of the revenue which could, 
by its own virtue, charm gold and silver into circulation. 



276 FINANCIAL HISTORY OF THE UNITED STATES. [1815. 

The people did not possess a metallic medium ; nor could 
they be expected to procure it, unaided by the banks. 
They, too timid or too interested, declined every overture 
to co-operate in re-instating the lawful money. Even 
Congress remained passive. The power of coercing the 
banks was limited to the rejection of their notes in pay- 
ing taxes, and to the exclusion of their agency in the 
custody and distribution of the revenue. Even if more 
power had been exercised, a coin currency would not 
have been created ; while the people would have suffered, 
and a hazard been put on all the money due to the gov- 
ernment. Until, therefore, a substitute could be pro- 
vided, it was useless and impolitic to insist on payment 
of the revenues in a medium which the people did not 
possess, and could not procure. 1 

One mode of relieving the treasury somewhat was by 
employing treasury-notes. Issued by the government, 
and bearing interest, and receivable in payment of debts 
and taxes, they were evidently more valuable than bank- 
notes. But bank-machinery gave an impulse and direc- 
tion to its issues which could not be imparted, by the 
forms of the treasury or any merely official institution, 
to the paper of the government. In the operations of a 
bank, too, the facilities of bank-credits supplied the place, 
in a very important degree, of the issues of notes ; so that 
a bank-loan, so Dallas declared, of thirty million dollars, 
would probably require no greater issue than six million 
dollars of notes. On the contrary, the sum raised by an 
issue of treasury-notes must be actually sent in that form 
into the market, through the various channels of credit 

1 Annual Treasury Report, December, 1816. 



1815.] THE CIRCULATING MEDIUM. 277 

and. demand. Treasury-notes, however, could partly sup- 
ply the place of a circulating medium; and, so far as 
possible, Dallas and Congress were desirous of thus em- 
ploying them. 1 

The State banks, after suspending specie payments, 
might have furnished far more assistance than they did 
to the government and individuals. Had they given 
credit and circulation to the notes of each other through- 
out the United States, or had they been willing to adopt 
the fiscal views of Dallas, a total dependence on those 
institutions, however impolitic in the abstract, would 
have been practically safe and beneficial. But by con- 
tinuing to limit their circulation to the city, town, or 
State where it was issued, their notes totally failed to 
fulfil the purpose of a circulating medium ; and the 
receipt of them in payment of duties converted the 
public revenue, which was destined for general uses at 
home and abroad, into a local fund, which often was not 
wanted where it existed, and was wanted where it could 
not be had. This difficulty might have been obviated 
somewhat, after a time, by establishing a rate of exchange 
on the transfer of the revenue from the places of collec- 
tion and deposit to the places of demand and employ- 
ment; but Congress did not heed Dallas's recommenda- 
tion. 2 

The reader may ask, Why did not Dallas compel debt- 
ors to pay the government in coin, — the only kind of 
money recognized by the constitution ? Had he done so, 

1 Dallas's Letters to Chairman of Com. of Ways and Means, Oct. 17, 
1814, 2 Finance, p. 866, and Feb. 20, 1815, Ibid., p. 910. 

2 Dallas's Letter, Feb. 20, 1815. 



278 FINANCIAL HISTORY OF THE UNITED STATES. [1815. 

the Eastern States would not have suffered ; for their 
circulating medium would have remained, and retained 
its value, whatever policy might have been adopted by 
the banks of other states. But the effect of such a 
requirement in other sections of the Union, unless their 
local banks had observed it in their ordinary business, 
would have been to deprive the people of their only 
means of paying the public taxes and of maintaining 
trade. The secretary, therefore, during the year 1815, 
acquiesced in the arrangements then existing, though de- 
termined to demand coin payments at the earliest practi- 
cable moment. 

Dallas told Congress, very soon after accepting office, 
that the true way to put the people in a condition to pay 
the money prescribed by the constitution was to estab- 
lish a national bank. This, he declared, was the only 
effective remedy that could be applied. Beside accom- 
plishing that object, it would constitute a safe depository 
for the public treasure, and a constant auxiliary to the 
public credit. He proposed that a national bank should 
be incorporated for the term of twenty years, with a capi- 
tal of fifty million dollars, two-fifths of which should be 
subscribed by the government, and the remainder by cor- 
porations, companies, and individuals. He further pro- 
posed that the concern should loan thirty million dollars 
to the United States at six per cent interest, at times and 
in sums mutually convenient. 1 A bill constituting it was 
immediately introduced into the House. When recom- 
mitted to the committee who reported it, the question 
was warmly discussed of the expediency of issuing forty- 

i Dallas's Letter, Oct. 17, 1814. 



1815.] THE CIRCULATING MEDITJM. 279 

four million dollars of treasury-notes which should be re- 
ceivable in subscriptions to the bank. Dallas's opinion 
was asked. He believed that it would be extremely diffi- 
cult, if not impracticable, to get so many treasury-notes 
into circulation with or without depreciation. This opin- 
ion was founded on several reasons : 1. If the subscrip- 
tions to the bank became an object of speculation, the 
treasury-notes would probably be purchased at the treas- 
ury, and loan offices, and never pass into circulation at 
all; 2. Whatever portion of the treasury-notes might 
pass into circulation would be speedily withdrawn by the 
speculators in the subscription- to the bank, after steps 
had been taken to depreciate their value. The only dif- 
ference between the notes which had been issued, and 
those proposed, was in their subscribable quality; but 
this was not believed to be great enough to secure the 
circulation of so great an amount. 1 / 1 

The State banks were opposed to the creation of a i 
national bank. The interests of the two were diametri- 
cally opposed. A memorial was sent to both Houses ' 
from five of the banks in the State of New York, con- 
taining their reasons for opposing the creation of such an 
institution. The memorialists .declared that the present 
time was most inauspicious for creating a national bank, 
and that, so far from aiding the fiscal operations of the 
government, it would, in their opinion, tend to embarrass, 
even more than the adverse circumstances of the times 
had already done, all public as well as private credit. 
The memorialists " firmly " believed that the proposed 
capital was too large, that the six million dollars of specie 

i Dallas's Letter to Lowndes, Nov. 27, 1814, 2 Finance, p. 872. 



280 FINANCIAL HISTORY OF THE UNITED STATES. [1815. 

needed could not be obtained by any inducements which 
could be held out, and that a less sum would not afford 
proper security to the public ; that, even if six millions 
could be procured, the payment of the notes in specie 
could only be continued for a short period, under the 
present circumstances of the country ; that if, by the 
exercise of the power proposed to be lodged in the Presi- 
dent of the United States, the notes were not paid in 
specie, they would infallibly depreciate ; that, if they did, 
no existing bank could possibly take them without the 
greatest injury to their stockholders ; and that, if the 
notes were not taken by the banks throughout the coun- 
try, they would not serve as a general medium of circula- 
tion. 

There was another class who opposed the chartering of 
the bank, — the speculators in exchange, — whose influence 
was very powerful. The amount of exchanges effected 
annually at this time was computed at sixty million dol- 
lars. The dealers in exchange were reaping a rich har- 
vest from the depreciated money in circulation. It was 
not surprising, therefore, to find them opposing an insti- 
tution, which, if successful, would relieve the community 
of the enormous tax paid to them, and utterly destroy 
their business. 1 

Notwithstanding the opposition to the measure, a char- 
ter was granted in January, 1815 ; but President Madison 
vetoed it, not for lack of constitutionality, — a point 
which he regarded as settled by the courts, — but for 
other reasons that may be briefly given. The amount of 
the government stock which might be subscribed would 

i Clarke and Hall's Leg. and Doc. Hist, of Bank of U. S., p. 743. 



1815.] THE CIRCULATING MEDIUM. 281 

not, he believed, be sufficient to produce in favor of the 
public credit any considerable or lasting increase of its 
market-price. On the other hand, the stock might be 
occasionally depressed by the bank itself, if it should 
carry into market the proportion of capital it was per- 
mitted to hold, consisting of public stock, in order to 
procure specie, which it might desire to obtain, even at 
the sacrifice of a portion of its capital. Subscribers were 
also to be allowed to pay for their subscriptions in part 
in treasury-notes. But the President declared in his veto 
that the actual issue of these notes nearly equalled at 
present, and would soon exceed, the amount to be sub- 
scribed to the bank. The direct effect of this operation 
would be simply to convert fifteen million dollars of 
treasury-notes into the same amount of six-per-cent stock, 
with the collateral effect of promoting an additional de- 
mand for treasury-notes beyond what might otherwise be 
negotiable. Furthermore, the bank, if constituted as pro- 
posed, could not be relied on, during the war, to provide 
a circulating medium, nor to furnish loans, nor anticipa- 
tions of the revenue. 1 

Though the first charter failed through defects which 
the President would not sanction, another was passed the 
next session which he signed without hesitation. In the 
mean time, Dallas sought to induce the State banks to 
resume specie pa3<ments, but without success. In New 
England the desire of the banks to return to them was 
very strong : indeed, they professed to pay gold and silver. 
For a considerable period they had issued only a very few 
notes of their own. The wants of the people were sup- 

1 Communicated to the Senate, Jan. 30, 1815, 2 Finance, p. 891. 



282 FINANCIAL HISTORY OF THE UNITED STATES. [1815. 

plied chiefly with treasury-notes. The revenue there was 
almost wholly collected in them; and prior to purchas- 
ing them at a considerable discount, 1 importers were 
placed at a very serious disadvantage with importers else- 
where. In other sections of the country, however, the 
banks were less inclined to resume specie payments, 
although each bank professed to be, if the others were 
ready. 

Dallas's proposition to them was to begin the payment 
of coin in small sums on the 1st of October, 1816; but 
they deemed such a resumption of specie payments inexpe- 
dient. They desired to defer the time for resuming until 
the 1st of July the following year. He strongly depre- 
cated the delay. In his report to the House on the state 
of the finances, made only a few days before resigning 
office, he set forth in the strongest light many reasons 
why the State banks should resume the next January, 
when the national bank was to begin pa}dng in coin, or 
on the 20th of the following month, when coin payments 
were to be exacted by the government for duties and 
other taxes. 2 

The banks possessed considerable specie; for early in 
1814 3 they wrote to Dallas, suggesting " the propriety of 
his recommending to Congress " the enactment of a law 
making foreign gold coins a legal tender. Unless this 
quality were given to them, heavy losses were appre- 
hended. So the former laws, making them a legal tender, 

1 Dallas's Letter to Chairman of Com. on National Currency, Nov. 27, 
1814. 

2 Sept. 30, 1816, 3 Finance, p. 129. 
s March 4, 2 Finance, p. 837. 



1816.] THE CIRCULATING MEDIUM. 283 

were revived, and continued in part until 1827. 1 To 
prevent coin from going abroad, Dallas was in favor of 
prohibiting its exportation for a limited time; but Con- 
gress maintained a different view. 

Before concluding this chapter, the fact may be added 
that some persons who had received treasury-notes from 
the government in payment of contracts at a period 
when they were worth less than par, afterward sought 
to recover the difference ; but Congress objected strongly 
to paying it. A committee of that body declared they 
" were treated by the parties as the common currency of 
the country, and a substitution for the current coin to 
such only as were willing to accept them at par. They 
were what they purported to be, and what the law declared 
they should be, — available to the holder to the full extent 
of their nominal amount ; if no other way, by converting 
them into certificates of funded debt." Moreover, it 
might be justly maintained, that, as creditors expected to 
be paid in these notes, the prices of things purchased were 
advanced enough to cover the depreciation. Nevertheless, 
in several cases, Congress did vote to pay claims of this 
nature. 2 

i Act, April 29, 1816, 14 Cong., first session, chap. 139. Act, March 3, 
1819, 15 Cong., second session, chap. 97. Act, March 3, 1821, 16 Cong., 
second session, chap. 53. Act, March 3, 1823, 17 Cong., second session, 
chap. 50. 

2 Report No. 5, Dec. 22, 1836, 24 Cong., second session. 



284 FINANCIAL HISTORY OF THE UNITED STATES. [1813. 



CHAPTER IV. 

EFFECT OF THE WAR ON MANUFACTURES. 

For several years before the war numerous outrages 
were inflicted by the subjects of Great Britain on American 
commerce, the growth of which had excited their jealousy. 
Th,e English ministry shared the same unhealthy senti- 
ment. To drive our commerce from the seas was the 
chief end of Canning's unfeeling, selfish policy. It was 
thoroughly English, but it was successful. The steps of 
retaliation to which we were slowly and hesitatingly led, 
eventually had the effect which Canning so ardently de- 
sired; for when the war was over, and the smoke had 
cleared from the ocean, American ships could no longer 
be seen sailing peacefully on its great bosom, nor did 
they ever return in former numbers. It was like the 
blow that Nebuchadnezzar struck at the heart of Tyrian 
commerce, — costly, indeed, to Great Britain, but very 
effective ; and those who do not look back to the events 
of that day, to ascertain the prime cause of the decay of 
American shipping, build their arguments upon a wrong 
foundation. 

If the English ministry succeeded in accomplishing 
their design, they did not intend to aid in cultivating a 
fairer tree, whose branches in due time should cast their 
shadow over Great Britain itself. It was, however, during 



1813.] EFFECT OF THE WAR ON MANUFACTURES. 285 

this troubled period, that American manufactures were 
securely rooted. The methods which Great Britain em- 
ployed to expel American commerce from the seas, were 
far more effectual barriers to the introduction of foreign 
manufactures than any set up by the American govern- 
ment. Just in proportion as the embargo laws, and other 
kindred measures, were effective in destroying American 
shipping, did American manufactures strike deep root, and 
rankly grow. 

Until this period home manufactures had not been very 
important, nor had they offered serious competition to 
foreigners. Something had been done in manufacturing 
cotton goods, a few woollens had been made, some iron, 
and several other industries had been begun ; but all were 
in a nascent state. Many manufactures were the fruit of 
hand-labor. 

The embargo laws changed all this. When the supply 
from foreign countries was cut off, the dependence and 
helplessness of the people became manifest. What was 
to be done for blankets to clothe the army, and supply 
the Indians ? The secretary of war proposed that the 
non-intercourse law should be suspended in regard to 
them, so that they could be imported. 1 It was during this 
period, says Dallas, "that the importance of domestic 
manufactures became conspicuous to the nation, and made 
a lasting impression on the mind of every statesman and 
of every patriot. The weapons and munitions of war, the 
necessaries of clothing, and the comforts of living, were 
at first but scantily provided. The American market 
seemed for a while to be converted into a scene of gam- 

i Am. Labor versus British Free Trade, Phil., 1855, p. 4. 



286 FINANCIAL HISTORY OF THE UNITED STATES. [1813. 

bling and extortion ; and it was not the least of the evils 
generated by the unequal state of the supply and demand, 
that an illicit traffic with the enemy, by land and by water, 
was corruptly and systematically prosecuted from the 
commencement to the termination of hostilities." x 

Nevertheless, the American people were at first very 
slow in starting new manufacturing enterprises. For 
several years previous to the war the conduct of the gov- 
ernment had been very weak and vacillating. There 
seemed to be a lack of governing power. Truly the 
government existed in form, but had clearly manifested 
great weakness. The country had seen a small cabal, 
having the confidence of none outside themselves, con- 
trol legislation, and dictate appointments. The Presi- 
dent had acted like a helpless ship with disabled rudder. 
It was distressing to witness the scene. Canning looked 
on, and smiled. Had our government been strong, he 
never would have been permitted to insult it for the long 
period he did, without at least a mighty cry, and deter- 
mined effort to resent the injury. This state of things 



1 Report on Tariff of Duties on Imports, Feb. 13, 1816, 3 Finance, p. 85. 
" The amount of loss and positive suffering which resulted from this 
unfortunate state of affairs (war of 1812) can be but faintly conceived by 
the generation now on the stage. History, indeed, gives us some idea of 
it ; but one must talk with aged men and women who passed through that 
gloomy and distressing scene, if he would know how wretched may be the 
condition of a people engaged in conflict with a powerful foe, yet without 
the means of producing clothing for their armies, or of producing within 
themselves the essential and varied material of war" (Bigelow's Tariff 
Policy, pp. 61, 62). Edward Everett said in a speech delivered in New 
York in 1831, that competent judges had estimated the enhanced price of 
clothing, during the war of 1812, at a larger sum than all the duties paid 
on cloth since that time (Ibid., p. 62, note). 



1813.] EFFECT OF THE WAR ON MANUFACTURES. 287 

was any thing but favorable to American manufac- 
turing. Hearing a gentleman, remarked a writer at that 
time, complain for the want of wire, I said, " You have 
capital enough: why do you want it? Establish a man- 
ufactory, and make it for yourself." He replied, "I 
would have done so a considerable time since, and I am 
willing to do so now; but the measures of government 
are so uncertain, and no disposition exists in Congress 
to defend such establishments, that I rather choose to 
suffer present evils than attempt to remedy them by an 
exertion that might be attended with more serious con- 
sequences." He added, "This is a general rule among 
the people. They make no calculation, as the British 
manufacturer does, on the protection of the govern- 
ment, and therefore attempt nothing that they are 
not morally certain will immediately be so reproduc- 
tive as to enable them fairly to compete with the old 
establishments of Europe." 2 The prejudice which had 
been so general, respecting the inferiority of American 
manufactures, was decreasing, although enough existed 
to embarrass somewhat the home producer in selling 
his product. 2 

Notwithstanding the attitude of the government, indi- 
viduals did engage in new enterprises. Having once 
begun in earnest, the fever rapidly spread. Various 
manufactures were successfully produced. 3 A great im- 
provement was made in woollen cloth, and in many kinds 
of tools. Said Niles, writing near the close of 1812, 
u The progress of manufactures is astonishing. The 
world has no parallel for the • population of the United 

i 2 Niles, p. 8. U ibid., p. 462. 3 ibid., pp. 390, 406. 



288 FINANCIAL HISTORY OF THE UNITED STATES. [1813. 

States, nor can it furnish any for the increase of our fab- 
rications." 1 

Cobbett, on the other side of the Atlantic, watching 
our progress, exclaims, " See what has been, only by the 
short operation of the embargo and non-intercourse act, 
done in America! To such an extent have the cloth 
and the cotton manufactories grown up there, that I 
have been credibly informed, that, during last year, the 
cards for carding wool and cotton, shipped for America 
from the port of Liverpool, have exceeded in amount the 
cloths shipped at the same port from the counties of 
Somerset and Gloucester. . . . We have here before us 
the seeds of a great event, — nothing less than the com- 
plete and absolute independence of America upon Eng- 
lish manufactures." 2 

In 1810 there were ten thousand bales of cotton manu- 
factured in the United States. Five years afterward, 
ninety thousand bales were used, which were manufac- 
tured into eighty-one million yards of cloth, costing an 
average of thirty cents per yard. These facts reveal at 
once the rapid growth of this branch of manufacture. 
The iron fabricated was sufficient, within three thousand 
tons, to supply the whole consumption of the country. 
Woollen manufactures, though not quite so far advanced, 
were prosecuted with equal vigor. The home supply of 
white and red lead, and shot, was sufficient. Earthen 
wares were made in immense quantities, "and with an 
elegance beginning to rival the workmanship of Europe." 

i 3 Niles, p. 189. See 6 Ibid., p. 173, for list of manufactures made at 
that time. 

2 1 Ibid., p. 164. 



1814.] EFFECT OF THE WAR ON MANUFACTURES. 289 

In the manufacture of glass it was affirmed that our work- 
men had rivalled those of England. Except some fine 
articles not often wanted, we were supplied altogether by 
home manufacturers. 1 

Those who consumed these products were obliged to 
pay dearly for them. Importers and merchants having 
stocks on hand when the embargo laws went into effect, 
did not hesitate to ask enormous prices of buyers. Manu- 
facturers followed the example. There was no little com- 
plaining about these things. Even Niles, whose devotion 
to the cause of American manufactures has been rarely 
parallelled and never surpassed, writes to them in the 
"Register," 2 "Your profits at present are exceedingly 
great. Your works are more productive than the mines 
of Mexico." But he especially warns them against dete- 
riorating the quality of their products: "I have feared 
that your eagerness to make money was a little like the 
conduct of the farmer, who, having a goose that laid a 
golden egg each day, would have grasped the whole at 
once by killing the goose, by which he lost all. From 
personal observation and general remark, it appears that 
the character of many of your goods is depreciating, 
though others have and deserve the highest price. Be 
content, then," he advises them, " with a present business 
' better than coining.' Get as much as you can for your 
goods, but let them be of the best quality; then you 
may command a preference over foreign manufactures. 
And if, with this advantage, and the cost of freight, 

1 Report of Com. on Manuf., Feb. 13, 1816, 9 Niles, p. 447. Todd's 
Speech, February, 1824, 18 Cong., first session. 

2 Vol. vi. p. 217. 



290 FINANCIAL HISTORY OF THE UNITED STATES. [1814. 

charges, and duties on goods imported, you cannot meet 
your great rival, you ought to quit the business. If you 
deserve the encouragement, the double duties may be 
continued, some time after peace (come when it will), for 
your protection ; but they will not be exacted of the peo- 
ple merely for your profit, nor is it right they should 
be." 

During the year 1813 the price of cotton advanced, 
and that of twist diminished ; and the profits of the cot- 
ton manufacturer greatly declined. The manufacturers 
of woollen cloths continued to realize large profit when 
their business was managed with economy. But their 
time of trial soon came, and the prices of their fabrics 
rapidly fell. A writer who was describing these things, 
but friendly to the manufacturers, says, " Have not their 
prices been exorbitant ? and, instead of a moderate profit 
of one to two dollars per yard, have they not made from 
four to eight dollars? There are good reasons for sup- 
posing so." 1 

Doubtless the manufacturers thought, that, as their 
future was uncertain, they would improve the present, 
and make all they could before the evil time came. Any- 
how, their large profits created no little dissatisfaction; 
and when, in 1816, they sought to have their interests 
protected by legislation, they then learned what the peo- 
ple thought of their conduct. Nothing made the fires 
of opposition to them burn so brightly as the recollection 
of the high prices they had charged for their goods. 2 

i 8 Niles, p. 234. 

2 " Foreign cloths were sold in 1811, before the war, at eight, nine, and 
ten dollars per yard. Merino washed wool was then about seventy-five 



1815.] EFFECT OF THE WAR ON MANUFACTURES. 291 

They could indeed reply, We did simply like others who 
had control of the market. Did not the merchants set 
the example in selling their merchandise ? This answer 
did not wholly satisfy the people. 1 They could not easily 
forget, or cease to grumble, about the prices they had been 
obliged to pay during the gloomy period of war and non- 
intercourse with Great Britain. 

Thus, in consequence of interrupting the foreign trade 
of the United States by embargo and non-intercourse laws, 
and by war, a great and salutary stimulus was given to- 

cents per pound. A hundred and fifty thousand pounds of imported, 
merino wool were sold in the course of that year, by Messrs. Warder & 
Son of Philadelphia, to Messrs. Dupont of Wilmington, and others, for 
from seventy to eighty cents. On the general establishment of the woollen 
manufactories in the close of 1813, merino wool was sold at two dollars 
and a half to three dollars per pound, as appears by the Philadelphia price 
current ; which also shows, that, on the 28th of March, 1814, the price was 
from three to four dollars, at which it continued stationary for the remain- 
der of the year. The highest price of American superfine broadcloth, at 
that period, averaged from twelve to fourteen dollars. Foreign cloth was 
generally sold at a higher rate, and, but for the supplies from the Ameri- 
can manufactories, would probably have been sold for twenty dollars. 
Thus, while the farmer (who advanced the raw material from four to five 
hundred per cent) and the importer (who raised his prices from fifty to two 
hundred per cent on the various articles he had for sale) accuse the manu- 
facturer of extortion, the latter did not advance his fabrics more than fifty 
per cent on the prices current before the war, notwithstanding the ex- 
travagant rise in the price of the raw material, and likewise in wages, 
owing to the extraordinary demand for workmen, and notwithstanding 
the enormous expense of the manufacturing establishments, and the ad- 
vance in the price of almost every article of food and dress." — 17 Niles, 
p. 88. 

1 Mr. Gold, a member of the House, remarked during the discussion of 
the tariff -bill in April, 1816, " It is further objected that our manufacturers 
will extort extravagant prices ; and the prices during the last year are re- 
ferred to in support of the objection. Is this charge against manufacturers 
just ? Does not every member of this committee know that the charge 



292 FINANCIAL HISTORY OF THE UNITED STATES. [1815. 

ward establishing manufactures on our own soil. What 
progress had been made, viewed in English eyes, may be 
learned from a parliamentary report setting forth the 
effects of the orders in council : " It clearly appears that 
those manufactures have been greatly promoted by the 
interruption of intercourse with this country, and that, 
unless that intercourse be speedily restored, the United 
States will be able to manufacture for their own consump- 
tion." 2 The more sanguine at home saw in the near future 
the realization of the fear which now darkly overcast the 
prospects of the English manufacturer. The voice of the 
prophet was heard in many places prophesying the early 
release of the people from dependence on British manu- 
facturers for supplies of clothing, iron and steel wares, 
and other things. The prophecies were to be fulfilled, 
but not in the way and time so confidently prophesied. 
Not until a gigantic struggle had been waged, in which 
millions of money were lost, and every artifice was ex- 
hausted, did the foreign manufacturer retire from the 
field. Seven years sufficed to win the political inde- 

applies equally against all classes during the late war? Did not the 
merchant who had cloths on hand profit equally by the times ? Did he 
not impose a hundred per cent profit on his peace importation ? Was not 
the settled order of things unhinged by the war, and did not all classes 
exact the most extravagant prices ? If the manufacture of cottons were a 
mystery confined to a few, there might be foundation for the objection ; 
but the fact is, the manufacture is simple, machine-makers greatly multi- 
plied, and the manufacture is now actually spread over more than half 
of the United States. It began in the East, has spread to the West, and 
has now actually passed the mountains. Instead of concert to raise prices, 
competition and the spirit of understanding prevail to such an extent, that 
sales are often made without profit." — Annals, 14 Cong., first session, 
p. 1325. 

i 4 Niles, p. 105. 



1813.] EFFECT OF THE WAR ON MANUFACTURES. 293 

pendence of the United States; but nearly a century 
must pass before their industrial independence could be 
secured. 

Before the introduction of the restrictive system, the 
duties on imports had been collected without much ex- 
pense or loss ; nor had many frauds been perpetrated on 
the government. Their successful collection, however, so 
Dallas affirmed, "depended more upon the integrity of 
the commercial community than upon the rigor of the 
laws, or an expensive vigilance at the custom-house." But 
when the duties on imports were doubled, and the prices 
of foreign merchandise suddenly rose to a high figure, the 
spirit of illicit commerce was kindled, and rapidly spread. 
More energetic measures became necessary to protect the 
fair trader, and to secure the revenue. Previously the 
average annual expense of collection had been about four 
per cent, excluding the fees paid by individuals, which 
were estimated at one per cent more. While the war 
raged, the revenues declined; but the expense of collection 
did not decline in proportion. The losses from smug- 
gling, practised on the frontier, were enormous ; and the 
laws were totally inadequate to suppress it. Soon after 
Dallas entered the treasury department, he suggested addi- 
tional legislation, which proved a more effective barrier 
to the illegal introduction of goods into the country. 1 

1 Dallas's Report on Rev. Laws, Dec. 7, 1814, 2 Finance, p. 881. Tariff 
of Duties on Imports, Feb. 13, 1816, 3 Ibid., p. 85. Act, March 3, 1815, 
13 Cong., third session, chap. 94. 



294 FINANCIAL HISTORY OF THE UNITED STATES. [1813. 



CHAPTER V. 

ADMINISTRATION OF THE TREASURY, FROM GALLATIN 
TO CRAWFORD. 

When Gallatin went abroad to negotiate a treaty, the 
business of the treasury was intrusted to Mr. Jones, the 
secretary of the navy ; the President confidently expect- 
ing, that, in due time, Gallatin would return, and resume 
the duties of his office. Negotiations proceeded slowly ; 
and Jones acted as secretary of the treasury from May, 
1813, until January the following year. His fitness for 
the post may be illustrated by the following incident: 
Soon after undertaking the duties of the treasury depart- 
ment, he made a report regarding the duties on prize 
goods, in which he overruled the opinion of Gallatin, 
Hamilton, and Adam Smith, on the same subject. He 
quoted a singular authority to sustain him, an entirely 
new light in the financial world, — Hudibras. The treas- 
ury had always maintained the position that the duties 
on imports were paid by consumers; but Mr. Jones de- 
clared that "the maxim derives more weight from the 
felicity of argument and commanding character of the 
great author of the i Wealth of Nations ' than from the uni- 
versality of the principle. It is undoubtedly true in the 
abstract ; but my experience as a merchant has taught 



1813.] ADMINISTRATION OF THE TREASURY. 295 

me to know the practical value of a maxim derived from 
an author of a lighter cast, — 

" < What is the worth of any thing 

But so much money as 'twill bring ? ' " 

The unpretending prose of former secretaries of the 
treasury had ill prepared the country for lyrical economy; 
and Congress could not help laughing, notwithstanding 
the gravity of the situation. Though his incompetency 
was known in the beginning, and every report furnished 
fresh evidence of it, he was kept at the head of the treas- 
ury office for more than nine months during a very criti- 
cal period of the war. 

Jones made two reports to Congress, — one at the open- 
ing of the special session in June, 1813, and the other 
six months afterward. In the former report he briefly 
explained the efforts of the treasury department to bor- 
row money ; estimated the probable needs of the gov- 
ernment, and what revenues might be expected from 
imports; and added a few very feeble recommendations 
about issuing treasury-notes, and the laying of internal 
taxes. These, he declared, were necessary for obtaining 
loans, and especially on reasonable terms. Although 
he showed, as he thought, the necessity for making "a 
speedy and effectual provision " for the public service, 
yet, as " the mode and the extent to which this provision 
should be carried had been previously suggested from 
that department to Congress, and had received the con- 
sideration of that body," this most important matter was 
glibly passed over without further comment, or a single 
recommendation. 



296 FINANCIAL HISTORY OE THE UNITED STATES. [1813. 

The annual report submitted to Congress in December, 
1813, was like the first. Of the estimated expenditure 
of ^45,350,000, Jones proposed that 129,350,000 should 
be raised by loans, and the remainder by taxation. After 
giving an estimate of the probable revenue, he was bold 
enough to remark, " It will rest with Congress to decide 
whether it is necessary that new and additional revenues 
should now be established." The reader of the foregoing 
chapters relating to the war, will perceive without much 
difficulty, we imagine, the necessity for wider and deeper 
taxation long before the time of making this report ; and 
he will wonder why the head of the treasury did not 
comprehend the situation of the government. A treas- 
ury nearly empty, and loans obtained only at a heavy 
discount, — these patent facts ought to have impressed 
Mr. Jones with the clearest conviction of the need oi 
increasing taxation speedily, and to have aroused him to 
giving forth no uncertain sound to Congress. The pov- 
erty of his recommendations painfully showed the poverty 
of his mind, and at a time, too, when a strong and cour- 
ageous spirit was needed to direct the finances of the 
government. 

The position of Gallatin was one of the reasons for 
keeping Jones at the head of the treasury. Had Gallatin 
resigned before going abroad, the President would have 
put the treasury department into stronger hands than 
those of the secretary of the navy. When Gallatin found 
that a long period must pass before making peace, and 
that he could not be confirmed in his present office unless 
he resigned the other, his resignation was sent, and ac- 
cepted by the President. He had long been thinking of 



1814.] ADMINISTRATION OF THE TREASURY. 297 

Alexander J. Dallas, to whom he was strongly attached, 
and whose abilities he appreciated , but his confirmation 
would have been impossible at that time, had the Presi- 
dent appointed him. Both the Pennsylvania senators 
were opposed to Dallas. They contemptuously declared 
they would not vote to place a mere Philadelphia lawyer, 
who had taken the side of the Federalists before the war, 
in the treasury. The office was offered to Langdon 
Cheves, speaker of the House ; but he declined it. In 
February, 1814, Pinkney having resigned the office of 
attorney-general, Dallas was offered the choice of that 
or the treasuryship ; but he declined both. His appoint- 
ment, therefore, was delayed several months. 

In the mean time, George W. Campbell, a senator from 
Tennessee, was offered the position, and he accepted it. 
He had previously served in the House as chairman of 
the Committee of Ways and Means, and had thus acquired 
some knowledge of national finance. On the 26th of 
September he sent a report on the state of the finances to 
the House , and this document proved very clearly that 
he was not the man for the emergency. Jones was too 
ignorant, and Campbell too weak, to grasp boldly ques- 
tions of finance. Like timid mariners, they kept near 
the shore, when safety required that they should venture 
forth into deep water. Campbell faintly suggested an 
increase of taxation ; but the report contained no strong 
recommendations, such as the time imperatively de- 
manded- Notwithstanding the numerous and grave con- 
sequences from suspending specie payments, all that 
Campbell could say was, that this act " by many of the 
most considerable banks in the United States, and of 



298 FINANCIAL HISTORY OF THE UNITED STATES. [1814. 

those most important in the money operations of the 
treasury, has produced, and will continue to cause, diffi- 
culties and embarrassments in those operations. The cir- 
culating medium of the country, which has consisted 
principally of bank-notes, is placed upon a new and un- 
certain footing ; and those difficulties and embarrassments 
will extend, in a greater or less degree, into the pecuniary 
operations of the citizens in general. The powers of Con- 
gress, so far as they extend, will be required to be exerted 
in providing a remedy for these evils, and in placing, if 
practicable, the currency of the country on a more uni- 
form, certain, and stable footing." These empty remarks 
on a question so vitally important at that time to the 
government and to the people, are painful proof of Camp- 
bell's timidity, and unfitness to administer the finances. 

During his brief stay in the treasury office, he did not 
become its master. To the chief clerk of the treasury 
department was intrusted very largely the negotiation of 
loans; and, after a short attempt to conduct the busi- 
ness of the office, it was necessary to relieve Campbell by 
appointing Samuel H. Smith acting secretary. Thus the 
period of inefficient management under Jones was pro- 
longed during Campbell's administration. There was no 
improvement ; but, rather, the situation grew worse. He 
resigned the 28th of September, two days after sending 
his report to the House. 

" Tell Dr. Madison," said Senator Lacock of Pennsyl- 
vania to the President's private secretary, "that we are 
now willing to submit to his Philadelphia lawyer for head 
of the treasury. The public patient is so very sick, that 
we must swallow any thing the doctor prescribes, how- 



1816 ] ADMINISTRATION OF THE TREASURY. 299 

ever nauseous the bolus." 2 " His intrepidity and firm- 
ness," says Ingersoll, " gave fresh impulse to the war for 
the few months that it lasted after his coming, — from 
October, 1814, till February, 1815, — and rescued the 
treasury from the disgraceful inanition it had fallen to 
during the prior twenty-eight months of hostilities. 
Arms, revenues, national power and resource, were just 
elevated to the proper war-standard, when it ended — 
never till then." 

Dallas had previously served the government in a legal 
capacity at Philadelphia, and had been active in politics, 
though not always in perfect accord with the members of 
his party. " Perhaps newspaper abuse, as he was an 
active and very able partisan, was the chief means of his 
notoriety." He had never acquired any special knowl- 
edge of finance, and was profuse in his own expenditures. 
His vigorous measures surprised and disconcerted many 
in his own party. Macon, chairman of the Committee of 
Ways and Means, wished to know if his experience in 
public affairs, and that of others who had long served in 
Congress, was to be set aside by a mere Philadelphia law- 
yer, whose powdered hair, old-fashioned but ostentatious 
dress, and graceful manners, were regarded as faults, 
rather than merits, in many observing eyes. He did not 
have that reverence for Congress shown by Gallatin, who 
had been a member of that body previous to his becom- 
ing secretary of the treasury. The occasion, also, was 
favorable for making urgent recommendations. The sack 
of the capitol by the enemy, joined to a long series of 

1 Dallas was confirmed Oct. 6, 1814, and was succeeded by William H. 
Crawford Oct. 22, 181G. 



300 FINANCIAL HISTORY OF THE UNITED STATES. [1816. 

unfortunate events, emboldened him to advocate power- 
ful measures without fear of encountering much opposi- 
tion. Increased taxation, and a national bank, were the 
principal measures which he constantly forced on the 
attention of Congress. He enjoyed the friendship of 
such men as Stephen Girard, David Parish, and John 
Jacob Astor ; and it was doubtless through their advice 
that he laid down with so much confidence the track on 
which he desired Congress to move. 

Though short, his administration had been eminently 
successful. When he left the treasury, the day for resum- 
ing specie payments was very near, 1 — an object for which 
he had persistently and effectually labored. A national 
bank had been chartered, which in due time aided the 
government in many ways. Its credit had been revived, 
and steps taken for reducing the public indebtedness. 
His successful and brilliant management of the finances 
is in striking contrast with the painful and humiliating 
inefficiency shown by his two immediate predecessors. 2 

i Feb. 20, 1817. 2 Ingersoll's Events of War of 1812, p. 252 et seq 



BOOK III. 

FROM THE CLOSE OF THE WAR IN 1815, TO 1860. 



CHAPTER I. 

PAYMENT OF THE FUNDED DEBT. 

The reimbursement of the debt was continued, not- 
withstanding the war with Great Britain. In 1812 
$2,135,000 were paid, but for several succeeding years 
only $1,570,000 were annually needed. The commis- 
sioners of the sinking-fund, after paying the interest on 
the debt, were required to apply the residue of the annual 
appropriation of $8,000,000 to the purchase of stocks, if 
their price fell below par. Gallatin feared, that, in conse- 
quence of this legal requirement, there would be greater 
difficulty in obtaining loans than if no such requirement 
existed. 1 The dreaded event did not happen: conse- 
quently the secretary was free to apply the larger portion 
of the money borrowed toward paying other indebted- 
ness. Nearly $3,000,000 of the old six-per-cent and de- 
ferred stocks were exchanged for new stock, under a law 
that was approved July 6, 1812. Several small purchases 
were made at different times ; and the amount remaining 
unpaid at the end of September, 1815, was $39,135,484.96. 
In the mean time a new debt had been contracted, of 
large proportions. The amount funded at the date last 
mentioned was $63,144,972.50: the floating debt was $17,- 

i Report of Com. of Ways and Means, Jan. 20, 1812, 2 Finance, p. 523. 

303 



304 FINANCIAL HISTORY OF THE UNITED STATES. [1815. 

355,101, which, except 11,150,000 of temporary loans, 
consisted of treasury-notes. Thus the total debt con- 
tracted since the beginning of the war was $80,500,- 
073.50. 1 On the 1st of October, 1816, fourteen kinds of 
stock, bearing seven different rates of interest, were held 
by the owners of $34,000,000 of the debt. 2 The funded 
debt at this time stood thus : — 

Old funded debt $37,494,267.01 

New funded debt 71,201,551.28 

Temporary loan 50,000.00 

$108,745,818.29 3 

When the treasury-notes were first issued, it was sup- 
posed they would be paid within the time designated. 
But they were not; and the amount remaining unpaid 
grew larger until the 20th of February, 1815. At that 
date there were issued, or ordered, $18,452,800. 4 These 
were a charge on the sinking-fund, and, while they re- 
mained so, were a serious burden. With a charge of 
more than twice the amount of the fund thrown upon it, 
beside other charges in the way of interest and payments 
on the new loans, the gravity of the situation is apparent. 
Dallas was desirous of emancipating the sinking-fund 
from the treasury-note debt. This could be done, either 
by paying them from the current revenues, or by funding 

i Elliot's Funding-System, p. 635. 

2 Lowndes's Report on the Public Debt, Jan. M, 1817, 3 Finance, p. 165. 

3 Another item of public debt was the Mississippi stock, which was 
created when the " Yazoo claims," so called, were settled, in August, 1816. 
The amount of this stock was $4,282,036.92. It bore no interest, however, 
and was reimbursable from the proceeds of public lands in the territory. 
See Dallas's Report, Sept. 20, 1816. 

4 Elliot, p. 621. 



1817.] PAYMENT OF THE FUNDED DEBT. 305 

them. He proposed, therefore, that provision should be 
made for paying or funding these notes in order to 
relieve the sinking-fund of that charge. He also pro- 
posed that the sinking-fund should be applied, first, to the 
interest and reimbursement of the old six-per-cent stock; 
and, secondly, to the payment of the principal and inter- 
est of the temporary loans obtained under the Act of 
March, 1812; and then to the payment of the interest ac- 
cruing on the stock debt created since the war. Finally, 
he proposed that the annual surplus of the sinking-fund, 
after satisfying these ends, should be applied to the pur- 
chase of the stock created since the war, and that the 
interest on the stock thus purchased should be added, 
from time to time, to that appropriation, for the purpose 
of making new purchases. 1 Congress was willing to fund 
the notes, but went no farther that session toward crys- 
tallizing the views of Dallas into legal form. 2 

The treasury-notes were rapidly absorbed for subscrip- 
tions to the debt, taxes, duties, and in other ways. At 
the close of 1817, only $635,963 were outstanding: 3 $36,- 
133,794 had been issued since 1812. 

The heavy addition to the public debt required an en- 
largement of the sinking-fund. Dallas's recommendation 
of an increase of $2,000,000, though not at first heeded 
by Congress, caused no injury to the public interests, 
because it was .essential to discharge all the floating 
indebtedness before preparing to reduce the funded debt. 
Notwithstanding the increase of revenues, the expenses of 

1 Letter to Com. of Ways and Means, Feb. 24, 1815, 2 Finance, p. 916. 

2 Act, March 3, 1815, 13 Cong., third session, chap. 87. 
8 Elliot, p. 711. 



306 FINANCIAL HISTORY OF THE UNITED STATES. [1817. 

the government continued heavy ; and the mass of float- 
ing obligations, including the treasury-notes, could not be 
discharged for several months after the war closed. In 
1817 the floating debt was decreased to such a small 
figure, that the secretary of the treasury could proceed 
toward discharging the funded indebtedness. 

Early in 1817 2 the funding-measures were repealed ; 
and Congress enacted, that from the proceeds of duties on 
merchandise imported, and on the tonnage of vessels, and 
from internal duties, and from the sales of Western lands, 
$10,000,000 should be annually appropriated to the sink- 
ing-fund, and be applied by the commissioners thereof to 
the payment of the interest, and the reimbursement or 
purchase, of the public debt. As the revenues for the 
year 1817 were very large, $9,000,000 in addition were 
appropriated to the same purpose ; and the secretary of 
the treasury was authorized to pay the sinking-fund 
commissioners $4,000,000 more, if he should deem it 
expedient to do so. Any future annual surplus exceed- 
ing $2,000,000 was appropriated in the same manner. 
The Act further provided, that, whenever there should be 
a surplus in the sinking-fund beyond the amount of inter- 
est and principal due and payable during any year, the 
commissioners were authorized, with the approval of the 
President, to purchase the debt at the market-price, pro- 
vided it did not exceed the following rates : for the three- 
per-cent stocks, not over sixty-five per cent ; for the 
six-per-cent stocks, not exceeding par ; and, for the seven- 
per-cent stocks, no higher rate, in proportion, than for 
the six-per-cent ones. Another change was made in the 

i Act, March 3, 14 Cong., second session, chap. 87. 



1817.] PAYMENT OF THE FUNDED DEBT. 307 

former funding Act, respecting the purchase of certifi- 
cates of indebtedness. These were to be cancelled and 
destroyed as soon as purchased, and no interest was to be 
considered as accruing on them. With no addition to the 
debt, it would be discharged in fourteen years if the law 
were executed. 

Crawford recommended Congress to grant the sink- 
ing-fund commissioners authority to buy the public stocks 
at those rates which, in their judgment, would be for the 
interest of the nation, rather than to suffer the funds that 
could not be applied in reducing the debt to accumulate. 
At the rates fixed by Congress, none could be purchased ; 
and only those portions could be redeemed which became 
due. Crawford showed the probable saving of such a 
measure. On the other hand, the interest that would be . 
paid, if continuing until all the stocks matured, would 
constitute a large sum. The wisdom of adopting Craw- 
ford's recommendation seemed apparent. The commis- 
sioners, he remarked, need not be required to purchase 
unless they saw fit : consequently the enactment of such 
a measure would not greatly raise the price of stocks. 
He added, that, should such an authority be granted to 
the commissioners of the sinking-fund, it was probable 
that the different species of stock would advance in price 
above their present current value , but as the authority 
would be permissive, not imposing the obligation to pur- 
chase, the surplus of the sinking-fund could be more 
beneficially employed in purchasing the public debt, so 
Crawford thought, than by remaining idle in the treasury 
until the year 1825. If that surplus could be invested 
early in each year, at the present prices of the different 



308 FINANCIAL HISTORY OF THE UNITED STATES. [1824. 

species of stock, it would produce a saving to the nation 
of not less than 14,000,000 between the first days cf 
January, 1820 and 1825, at which latter date the first 
war-loans of 1812 could be discharged. But Congress 
declined to invest the sinking-fund commissioners with 
the needed authority. 1 

Crawford then proposed that stocks which would be 
redeemable in 1825 and 1826, amounting to 124,000,000, 
bearing six and seven per cent interest, should be ex- 
changed for five-per-cent stocks, redeemable in 1831, 1832, 
and 1833. A proposal to the extent of renewing one- 
half that amount was embodied in a law , 2 but the secre- 
tary failed to induce the holders of these stocks to make 
an exchange, save to a very small amount. The in- 
creased demand for capital to prosecute commercial enter- 
prises had the usual effect of raising the rate of interest 
for money, and defeated the success of the measure. 
This event was not foreseen at the time the measure 
was proposed. 3 As there was a balance in the treasury 
on the 1st of January, 1824, amounting nearly to $10,- 
000,000, which would be shortly increased, Crawford rec- 
ommended that authority be granted to the commissioners 
of the sinking-fund to purchase the seven-per-cent stock, 
during the year, at rates consistent with the public inter- 
est. This recommendation was favorably received. 4 

1 Annual Report, December, 1817. 

2 Act, April 20, 1822, 17 Cong., first session, chap. 28. Crawford's An- 
nual Report, December, 1823. 

3 Annual Reports, 1821, 1822. Ways and Means Report, Dec. 31, 1821. 
17 Cong., first session. 

4 Act, Jan. 22, 1824, 18 Cong., first session, chap. 16. The balance of 
the seven-per-cent stock at that time was $8,606,490.27. It was all paid, 
except a trifling sum, during the year. 



1834.] PAYMENT OF THE FUNDED DEBT. 309 

At the beginning of 1826, 119,000,000 of the recent 
war-debt were redeemable. It was probable that not 
more than $7,000,000 could be discharged that year. 
The year following, 113,000,000 were redeemable, while 
it was equally probable that no larger sum could be paid 
than in the preceding year. There were, therefore, $18,- 
000,000 which could not be paid in those two years. In 
1828 the amount of principal redeemable would proba- 
bly not exceed the ability of the treasury to discharge. 
The two succeeding years, no portion of the public debt 
was redeemable, and in 1831 less than $19,000. " Policy 
would seem to suggest," said Crawford, " with a view 
both to the convenience of the government, and the 
advantage of the community, that the excess of debt 
which cannot be discharged in 1826 and 1827 should be 
thrown, in equal portions, upon those years in which 
nothing is payable. For the present, however, it may be 
sufficient to confine such an arrangement to the excess of 
the year 1826. From the state of the money-market, and 
the high credit of the government, no doubt is enter- 
tained that the $12,000,000 required to provide for the 
excess of debt on the 1st of January, 1826, may be bor- 
rowed at five per cent, reimbursable in 1829 and 1830." 
He desired that authority be granted for effecting this 
arrangement if it were approved. 1 

The same object, he remarked, might be accomplished 
by an exchange of the stock redeemable the 1st of Janu- 
ary, 1826, for a five-per-cent stock, redeemable in 1829 
and 1830. Crawford favored a loan. A proposal for a 
loan, he added truly, invited competition from all the 
1 Annual Report, December, 1824. 



310 FINANCIAL HISTORY OF THE UNITED STATES. [1834. 



moneyed capitalists, including the Bank of the United 
States; while an exchange of stock confined the demand 
for new stock to the holders of the old, who constituted, 
not only a small portion of the capitalists, but a portion 
who were interested in preventing the exchange. More- 
over, the experience of the government during the last 
two years justified the preference for a loan. The experi- 
ment for exchanging $24,000,000, in 1822, had proved a 
failure ; and another, tried the following year, for exchan- 
ging $15,000,000 of the six-per-cent stock of 1813, 1 had 
resulted in the exchange of only $3,308,307.45. 

Had Crawford's recommendation been adopted, for dis- 
posing of the excess of debt redeemable in 1826 and 1827, 
the amount redeemable in each year would have been the 
following : — 

In 1825 . . . $7,654,570.93, at 6 per cent. 

1826 . . . 7,002,356.62, at 6 per cent. 

1827 . . . 7,001,437.63, at 6 per cent. 

1828 . . . 9,490,099.10, at 6 per cent. 

1829 . . . 6,000,000-00, proposed to be at 5 per cent. 

1830 . . . 6,000,000.00, proposed to be at 5 per cent. 

1831 . . . 6,018,901.59, proposed to be at 5 per cent. 

1832 . . . 6,018,900.72, of which the sum of $1,018,- 

900.72 was to be at 5 per cent, and 
$5,000,000 at 4£ per cent. 

1833 . . . 6,673,055.31 at 4£ per cent, except $18,- 

901.59 at 5 per cent. 

1834 . . . 1,654,153.73, at 4£ per cent. 

1835 ... 4,735,296.30, at 5 per cent. 

This included all the public debt of the United States, 
except $7,000,000 of five-per-cent stock, subscribed to 

i Act, May 26, 1824, 18 Cong., first session, chap. 192. 



1824.] PAYMENT OF THE FUNDED DEBT. 311 

the capital of the Bank of the United States, and $13,296,- 
231.45 of three per cents, both of which were payable at 
the pleasure of the government. 

An exchange of $12,000,000 was proposed by Congress, 
— the sum that could not be redeemed in 1826. If the 
exchange could not be ma&e, then a loan by the govern- 
ment was to be effected. But, instead of fixing the rate 
of interest at five per cent, Congress cut the rate down 
to four and a half per cent. 1 The consequence was, 
that only $1,585,138.88 were exchanged, and none what- 
ever was subscribed to the loan offered. The reason why 
the loan failed was the low rate of interest offered, cou- 
pled with the short period of redemption, and the activity 
in commerce and manufactures demanding an increase of 
capital. 

One-third of the amount due in the years 1825, 1826, 
and 1827, was held by Europeans ; and the inquiry was 
raised, whether, if this portion of the debt were paid, the 
remitting of the sum due abroad would not ruinously 
sweep away the remainder of our metallic money. 2 The 
author who put forth this inquiry, " though a decided 
adversary to the existence of a great public debt," never- 
theless believed that the nation could more judiciously 
employ its surplus in making internal improvements than 
in liquidating the national debt. 

During Crawford's administration of eight years, debt- 
paying had proceeded in a hopeful manner. On the 1st 

1 Act, March 3, 1825, 18 Cong., second session, chap. 100. Ways and 
Means Report, Jan. 12, 1825, 5 Finance, p. 174. 

2 Laws's Considerations, etc., for liquidating, within the Next Four 
Years, the Six-per-cent Stocks of theU. S., Wash., 1826, p. 9. 



312 FINANCIAL HISTORY OF THE UNITED STATES. [1834. 

of January, 1817, the whole debt of the United States 
was $123,491,965.16 ; of which sum, $115,257,805.48 were 
funded, bearing an average interest of 5.5Q% per cent per 
annum. On the 1st of January, eight years afterward, 
the debt was reduced to $86,045,003.18, bearing an aver- 
age interest of 5.23| per cent,* — a reduction of $37,446,- 
961.98 of principal, and of .33£ per cent in the average 
rate of interest. 

In the last year of Crawford's administration, $5,000,- 
000 were borrowed at four and a half per cent to pay 
awards under the Florida treaty. 1 The money was bor- 
rowed from the United-States bank. A similar sum was 
borrowed from the bank to reimburse, in part, a war- 
loan of 1812, which became due that year, amounting to 
$10,331,000. For the second loan, proposals were asked. 
The amount offered, beside that of the bank, was $2,554,- 
585.37, at rates varying between par and four and a 
half per cent premium. The proposal of the bank was 
for the whole amount at par. Although the individual 
offers were far more favorable, seemingly, than the offer of 
the bank, yet considering that the government was the 
proprietor of one-fifth of the capital, and that the sum 
thus offered would otherwise be unemployed, the offer of 
the bank was regarded as " decidedly the most advanta- 
geous for the government, being equal to an individual 
offer at four and three-quarters per cent premium." 2 

When Rush succeeded Crawford in 1824, he desired 
authority to contract new loans at five per cent interest, 
to pay the portions which could not be reimbursed of the 

1 Act, May 24, 1824, 18 Cong., first session, chap. 140. 

2 Annual Report, December, 1824. 



1834.] PAYMENT OF THE FUNDED DEBT. 313 

loans of 1812 that were approaching maturity. But the 
Committee of Ways and Means, of which McLane was 
chairman, affirmed that the time was unfavorable for ex- 
changing stock, or procuring new loans on reasonable 
terms. Moreover, the secretary supposed that the exist- 
ing six-per-cent loans could not be paid in part, — a 
view not sustained by the law authorizing them, which 
expressly reserved the right of paying the whole or any 
part of them whenever they became reimbursable. The 
opinion entertained by the committee was, that by adopt- 
ing the plan of partial payments, and applying the surplus 
quarterly, in conformity with the sinking-fund law of 
1817, the debt would be more speedily and economically 
reimbursed, and more equally and beneficially distributed 
through different years; better meeting the convenience 
of the government, lessening the expenditure on ac- 
count of interest, and effectually preventing the accumu- 
lation of money in the treasurj^. 1 That portion of the 
debt, therefore, which could not be paid when it ma- 
tured, was continued at the former rate of six per cent. 
The policy of Congress was wasteful, and without any 
justification whatever. Had a large portion of the war- 
debt of 1812 been refunded when Crawford desired, at 
five per cent interest, at which rate the money could 
have been easily obtained, a considerable saving would 
have been effected. 

During the first seven years after the sinking-fund law 
of 1817 went into operation, the whole sum required to be 
paid to the commissioners, in order to comply fully with 
its terms, had not been paid within $3,000,000. During 

1 Report, Feb. 6, 1826, 5 Finance, p. 285. 



314 FINANCIAL HISTORY OF THE UNITED STATES. [1839. 

the next four years, however, while Rush was at the head 
of the treasury, this deficiency was paid, beside the regu- 
lar annual payments of $10,000,000. Interest was always 
scrupulously paid when the quarter came around. It 
may be added, too, that there was not always a sufficient 
amount of debt redeemable every year to which the whole 
amount of the annual sinking-fund could be applied. 
During the eleven years the Act had been in operation, 
from the 1st of January, 1817, $146,669,773.48 had been 
paid, of which $88,834,108.66 were for principal, and the 
remainder for interest. 

The flourishing condition of the revenues, and the 
prompt payment of the interest of the debt, produced a 
marked effect on the price of the public stocks. They 
rose above par, notwithstanding their early maturity. 
This fact operated directly to increase the value of the 
three per cents, and to create the belief that they, too, 
would be finally redeemed at par. The price of these 
rose to eighty-five ; nor were they easily purchased even 
at that figure. In 1829 the price was eighty-seven and 
a half, and the most of them were finally redeemed at 
their par value. Nine years previously Crawford had 
expressed the opinion that the sales of the Western lands 
were pledged for their reimbursement, and that at some 
period these should be applied for their redemption. 1 In 
1830 the commissioners of the sinking-fund were author- 
ized to purchase the three per cents at the best rates pos- 
sible. 2 Par was paid for nearly the whole amount. In 
1832 the remainder was paid, amounting to $13,296,705.76, 

i May 3, 1820, Elliot, p. 775. 

2 Act, April 24, 1830, 21 Cong., first session, chap. 78. 



1834.] PAYMENT OF THE FUNDED DEBT. 315 

and leaving at the end of that year only 17,001,698.83 of 
funded debt. It may be questioned whether long before, 
the government, seeing its ability to discharge all its 
indebtedness, ought not to have given notice that it 
would ultimately pay the full amount of this portion of 
the debt. The money had been advanced in the begin- 
ning ; and the government had used it as profitably as any 
other funds, and was under an equally strong obligation 
to pay it. 1 Had the bank-shares been sold, as the secre- 
tary of the treasury desired, the avails would have been 
more than sufficient to extinguish the entire debt. The 
government, therefore, was really released from the bur- 
den of indebtedness. The bank-shares had been paid: 
they yielded a rich return, — far more than the interest on 
the small amount of debt remaining unpaid. With what 
pleasure did McLane, in his report at the close of 1832, 
remark, that " the debt may, therefore, be considered as 
substantially extinguished after the 1st of January next, 
which is earlier than was looked for, under the most pros- 
perous and economical administration of our affairs that 
could have been anticipated." 

In October, 1834, notice was given by the secretary of 
the treasury that the whole of the debt unredeemed 
after the 1st of January would cease to bear interest, 
and would be promptly paid after that date. 2 The duties 

1 Setting aside the obligation, this portion of the debt might have been 
redeemed more economically, had Congress not forbidden the purchase of 
them above sixty-five per cent in 1817. If no law of the kind had been 
enacted, the three per cents could have been purchased for much less than 
their face. 

2 The estimated amount of the debt not assumed by the government in 
1790, including the foreign as well as the domestic debt of the States, was 
$8,331,028.32 (Elliot's Funding-System, p. 130). This sum was never paid. 



316 FINANCIAL HISTORY OF THE UNITED STATES. [1834. 

of the. sinking-fund commission ceased; and the secre- 
tary of the treasury was intrusted with the power of 
paying the small amount of stock, and interest thereon, 
whenever payment should be demanded. No Act was 
passed abolishing the office of the sinking-fund commis- 
sioners ; but in 1830 the secretary of the treasury was 
required to pay over all the surplus in the treasury above 
five million dollars to the treasurers of the States. This 
requirement was a practical abolition of the duties of the 
sinking-fund commissioners. Nor for many years was 
there any legislation with respect to disposing of the 
balance of the debt, which might never be presented for 
payment. The amount was very small. 
* After making the final payment, Woodbury wrote that 
"the government had redeemed, whether at home or 
abroad, the entire debt of both the Revolution and the 
late war ; paid the purchase-money for Florida and Loui- 
siana ; and, with a most scrupulous sense of moral as well 
as political obligation, administered in various ways to 
the wants, and atoned for many of the losses, of those 
who had perilled life and fortune in the struggle for inde- 
pendence in which the debt arose. Its redemption had 
been effected without imposing heavy burdens upon the 
people, or leaving their treasury empty, trade languishing, 
and industry paralyzed, but, on the contrary, with almost 
every great interest of society flourishing, with taxes re- 
duced, a surplus of money on hand, valuable stocks and ex- 
tensive lands still owned by the government, and with such 
various other financial resources at command as to give to 
our country, in this respect, a very enviable superiority." x 

1 Annual Report, December, 1834. 



1816.] THE SECOND UNITED-STATES BANK. 317 



CHAPTER II. 

THE SECOND UNITED-STATES BANK, AND THE PUBLIC 
DEPOSITS. 

The second United-States bank finally received a very 
large number of the votes of both Houses of Congress, 
and also the cordial assent of the Executive. Nearly all 
doubt concerning the constitutionality of such an institu- 
tion had passed away ; and Congress, in establishing it, 
was heartily sustained by the people. Every one had 
experienced the ill effects of a depreciated money; and 
many saw no way of curing them, save through a national 
bank. Great things, therefore, were expected of it. How 
it fulfilled the public expectations, we shall proceed to 
show. 

The object of establishing the bank was mainly three- 
fold. First, specie payments had been suspended, which 
it was expected the bank would restore. Secondly, as the 
paper money then in circulation was not redeemable in 
specie, it passed at varying rates of discount, which sub- 
jected the government and individuals to varying losses. 
This difficulty it was expected the bank would remove, 
beside providing the country with a monetary medium 
that should possess equal value everywhere, which was 
not the case with the bank-notes then in use. 



318 FINANCIAL HISTORY 0#THE UNITED STATES. [1817. 

The capital of the bank was thirty-five million dollars, 
one-fifth of which was to be subscribed by the govern- 
ment, paying therefor in coin, or in five-per-cent stock. 
Other subscriptions were payable, one-fourth in coin, and 
the remainder in coin, or stock of the United States. 
There were to be twenty-five directors, and five of them 
were to be appointed by thePresident. The bank was to 
keep the public deposits, 1 and to aid the government, 
without charge, in negotiating its loans. Branches could 
be established, and notes issued of any denomination not 
below five dollars, which were to be receivable in all pay- 
ments to the United States. No other bank outside the 
District of Columbia was to be established by Congress 
during the continuance of the charter. " In considera- 
tion of the exclusive privileges and benefits conferred," 
the bank was required to pay five hundred thousand dol- 
lars annually for three years after the end of the second 
year of its existence. The bank was to continue for 
twenty years. 

The task confronting the bank was stupendous. When 
it began business, on the 7th of January, 1817, the 
notes of nearly all the banks outside New England were 
depreciated. Depreciation was greatest in Washing- 
ton and Baltimore, where they had fallen twenty-two 
per cent below par. At Philadelphia the depreciation 
was not so great, yet even there it was from seven- 
teen to eighteen per cent. In New York and Charles- 
ton it was from seven to ten per cent; but in the 
interior of the country, where banks were established, 
the depreciation exceeded even that at Washington and 

1 For section of charter relating to the deposits, see p. 19. 



1817.] THE SECOND UNITED-STATES BANK. 319 

Baltimore. New England alone was the only section 
of the Union where bank-notes had escaped the blight 
of depreciation. 

In restoring these depreciated issues to par with gold 
and silver, the United-States bank could obtain but little 
assistance from the State banks. Their interests lay on 
the other side, — in favor of continuing the suspension 
of specie payments. They were earning large dividends. 
Never had such profits been acquired in banking before. 
It was a new and dizzy experience, for a vast number of 
banks suddenly to emerge into existence, with no genu- 
ine capital, and soon fail, and yet, upon the ruin of their 
failure, continue to do business, and reap greater profits 
than would have been reaped by conducting their busi- 
ness on a sound basis. To resume specie payments would 
largely destroy the rich harvest they otherwise would 
continue to gather. So long as they were permitted to 
issue their own notes (bearing no interest, and not re- 
deemable), the more they issued, the larger their profits. 
Moreover, the noble army of debtors bravely (we will 
not say unselfishly) fought for the banks, because they 
could see that their indebtedness evaporated in propor- 
tion to the inflation of the bank-issues. The stockholders 
of these institutions, it is true, received their profits in a 
depreciated money ; but, as these were much greater than 
at any former time, they, too, were opposed to resuming 
specie payments. Thus those large interests, the banks 
and the debtor classes, were opposed to every plan sug- 
gested for restoring the bank circulation to the legal 
standard. They admitted the desirability of resuming 
specie payments; but, whenever an effort was made to 



320 FINANCIAL HISTORY OF THE UNITED STATES. [1817. 

establish a practical plan for doing so, their opposition 
was quickly shown. 1 

One cause favoring the resumption of specie payments 
was the restoration of peace ; for this event enabled the 
banks to dispose of their government notes and stocks at 
good prices. 

Another favoring cause was the action of Congress 
requiring the dues to the government to be paid in legal 
money. That body resolved, the 30th of April, 1816, 2 
that all duties, taxes, and debts payable to the United 
States after the twentieth day of February, 1817, should 
be paid in the "legal currency" of the government, or 
treasury-notes, or those of the Bank of the United States, 
or of other banks which were paid on demand "in the 
legal currency of the United States." This Act put an 
end to the gross injustice which the government had per- 
petrated on several cities by permitting importers to pay 
duties in money, varying greatly in value. We shall now 
endeavor to describe what the United-States bank did 
toward making this enactment effectual. 

As soon as the bank opened, the secretary of the treas- 
ury directed importers to lodge their bonds with it. The 
bank agreed to make the discounts necessary to pay 
them, or, rather, the notes given for the duties ; to secure 
which the bonds were taken. This agreement on the part 
of the bank was a very grave undertaking. The bank 
was to furnish discounts between the interval of the 20th 
of February, the time fixed for demanding specie or its 
equivalent, and the 1st of July, the time agreed by the 
banks for resuming specie payments. During this period 

1 N. Am. Rev., vol. xxxii. p. 547. 2 14 Cong., first session, Res. 8. 



1817.] THE SECOND UNITED -STATES BANK. 321 

of four months it was supposed that discounts to the 
amount of ten million dollars would be required. The 
reason why the secretary effected the arrangement, was 
because he feared the State banks would not furnish 
specie to the importers ; and if they did not, nor the 
United-States bank, the plan of the government must 
fail. This agreement the bank faithfully kept. 1 

Both the government, and the United-States bank, 
were desirous of hastening the return of specie payments. 
The banks had agreed to resume in July, 1817 ; but 
neither Crawford, who was secretary of the treasury, nor 
the Bank of the United States, had much faith that they 
would fulfil their agreement. The Bank of the United 
States, therefore, began negotiations with the State banks 
for the purpose of inducing them to agree to pay specie 
on the 20th of February, instead of postponing the time 
until the 1st of July. On the one hand, if the national 
bank succeeded, the obligation which it had incurred, of 
discounting all the bonds of importers, would be very 
much diminished ; for, if the State banks paid specie, of 
course their notes would be readily taken by the govern- 
ment : on the other hand, if they refused to make an 
arrangement, a large amount of valuable paper for dis- 
count purposes would go immediately to the United- 
States bank, thus losing many of their best customers. 
Hence all the banks were alike interested in effecting an 
harmonious arrangement by which the responsibility of 
the national bank would be reduced, and the patronage 
of the other banks be retained. 

With interests so strongly allied, an arrangement was 

i 4 Finance, pp. 768, 769. 



322 FINANCIAL HISTORY OF THE UNITED STATES. [1817. 

made ; although it may be questioned, whether, if a na- 
tional bank had not been established, any plan for the 
restoration of specie payments could have been devised, 
receiving their assent and co-operation. While no rival 
institution existed, the State banks controlled the situa- 
tion ; and they knew it, and improved the occasion to the 
best advantage. They surely would have been much 
slower in resuming specie payments than they were, had 
the United-States bank not been founded. 

The following plan was finally devised, 1 by which the 
incorporated banks of New York, Philadelphia, and Rich- 
mond, agreed to begin and continue the payment of specie 
after the 20th of February. On that day the balances in 
the several banks belonging to the government were to 
be transferred to the Bank of the United States, and 
retained by it until the 1st of July, when they were to 
be paid, with the interest thereon. In liquidating the 
balances which might be due, the United-States bank 
agreed to credit them respectively with the amount of 
their checks on banks which were parties to the agree- 
ment. 

The payment of the balances which might accumulate 
against the banks, subsequently to the transfer of the 
balances previously mentioned from the payment to them 
of government dues in return for money previously bor- 
rowed, were not to be demanded by the Bank of the 
United States until it and its branches had discounted, 
for individuals other than those having duties to pay sub- 
sequently to the 19th of February, certain specified sums 
in various places, provided the money was wanted within 

i Feb. 1, 1817. 



1818.] THE SECOND UNITED-STATES BANK. 323 

sixty days, and by persons who should offer good paper. 
If the whole amount should not be desired by lenders, 
then the balance was to be loaned to the banks that 
should sign the agreement. 1 

During the years 1817 and 1818 the government 
transferred to the bank at Philadelphia, from the State 
banks, $7,472,419.87, and 13,336,691.67 of special depos- 
its. 2 When the bank began business, eighteen branches 
were established in different States, which multiplied to 
twenty-five. But the notes of the national bank were 
everywhere received in payment of duties and other 
taxes to the government without reference to the place 
of issue, and were redeemable in specie at the bank, or 
any of its offices. In those places where the medium of 
exchange was composed of inconvertible paper, it was 
evidently the true policy of the national bank to contract 
such circulation, either by demanding payment of it in 
coin, or by refusing to receive it. Unhappily, it pursued 
another policy, from which it sustained no little incon- 
venience. 

The branches were instructed to give their own notes 
in preference to those of the State banks, and to deliver 
drafts on the eastern cities, whenever it could be done, to 
prevent remitting their own notes. The branch-notes 
and the drafts, issued in consequence of these instruc- 
tions, were swept eastward by the operations of trade. 
A vacuum in the circulation was thus produced, that 
could only be supplied by the local notes, which were 
readily received by the officers of the United-States 

1 4 Finance, p, 769. 

2 Smith's Report, Appendix, Sen. Doc. No. 104, 21 Cong., first session. 



324 FINANCIAL HISTORY OF THE UNITED STATES. [1818. 

bank, and were retained by them as a fund on which 
interest was charged to the State banks. 

By accepting bank-notes which there were good rea- 
sons for supposing would not be redeemed, and making 
them the circulating medium in the section where they 
were issued, the national bank committed the serious 
error of increasing the notes of the very banks that were 
the least worthy of confidence. The reason assigned 
by the bank was, that this was the only means of indu- 
cing the State banks to resume specie payments. But 
these institutions had no such intention ; for, when the 
United-States bank was afterward obliged to refuse to 
pay in specie the notes of its branches, many of the State 
banks began to suspend and evade specie payments. 

So long as the notes of each office were payable at all 
the others, and the office issuing them was not liable ex- 
clusively for their redemption, the discounts at those 
places against which there was a balance of trade be- 
came larger in proportion to their indemnity against 
demands. As the notes of the offices were rapidly car- 
ried off, the payment of these discounts was necessarily 
made in the notes of the local institutions. Thus one 
inevitable effect of the system was to increase the debts 
of the State banks to the offices of the Bank of the 
United States at these places. The demands of the bank 
were suffered to accumulate. Instead of gradually redu- 
cing them by requiring specie in small quantities, which 
would not have been felt, and which would have relieved 
the branches of the United-States bank, the reduction 
was not urged early enough: consequently, when the 
national bank began to call for specie, its demands were 



1818.] THE SECOND UNITED-STATES BANK. 325 

so considerable, that not only were the local banks ex- 
posed, but also the citizens in their vicinity, to a very 
severe pressure. 

When the bank began business, over $7,000,000 of 
specie were imported to secure its notes. Those issued 
by the bank, as well as by the branches, were redeemed, 
without reference to the place where they were payable, 
for a considerable period. Drafts were also given with- 
out limit on the parent-bank and northern offices, by the 
western offices, at par, or at a premium merely nomi- 
nal. As soon as the notes of the southern and western 
branches were paid or received by the bank, or the north- 
ern branches, they were returned to the source whence 
they were first issued, and once more put into circula- 
tion ; and thus they were kept in constant activity. The 
result may be easily divined. The bank and the north- 
ern offices were drained of their capital; and on the 
20th of July, 1818, eighteen months after opening its 
doors the institution was obliged to adopt the policy 
of rapidly curtailing its business. During this period 
it had had the benefit of immense government de- 
posits. At the time of beginning curtailments, these 
deposits amounted to $8,000,000, and in some preced- 
ing periods tray had been even larger. The curtail- 
ments were in the south-western offices, and within 
eight months amounted to $6,530,159.49. Yet, after 
applying this remedy, the bank at Philadelphia, and its 
New-York and Boston branches, were in a worse con- 
dition than before. 

Although the western branches were directed to di- 
minish their discounts, they purchased what were called 



326 FINANCIAL HISTOEY OF THE UNITED STATES. [1819. 

" race-horse bills " 1 to a greater amount than their cur- 
tailments. The bank itself continued, during the whole 
period, to purchase and collect drafts on the south-western 
offices, though a very large portion of its capital already 
lay in those quarters of the Union, and though the great 
object of the curtailments was to draw funds from those 
points. Indeed, during this period, the debt due in Ken- 
tucky and Ohio, instead of diminishing, was increased 
more than half a million dollars. 

These curtailments were ordered in March, 1819. The 
bank at that time was in a truly deplorable condition. 
Vast sums of specie had been imported at large expense, 
to maintain specie payments; but nearly all was gone. 
On the 21st of April there were only $126,745.28, and the 
bank owed to the city banks of Philadelphia $79,125.99. 
" All the resources of the bank," says Cheves, its presi- 
dent, from whose report many of these facts are drawn, 
"would not have sustained it, in this course and mode 
of doing business, another month. Such was the pros- 
trate state of the bank of the nation, which had, only 
twenty-seven months before, commenced business with an 
untrammelled active capital of $28,000,000." 2 

When Cheves was elected president, in March, 1819, a 
very different administration was begun. Jones, the for- 

1 These were drafts drawn between the different places where branches 
existed ; so that a bill which fell due at one place was met by the discount 
of a bill drawn on another place: in other words, this was a mode of 
making renewals. 

2 Spencer's Report, Nov, 25, 1818, 15 Cong., second session. Clarke and 
Hall's Doc. Hist, of Bank of U. S., p. 714. For an examination of Spen- 
cer's Report, see the Letters of Aegles, which contain " a complete refuta- 
tion of every charge against the directors of the bank," Baltimore, 1819. 



1819.] THE SECOND UNITED-STATES BANK. 327 

mer president, whose incapacity for such a position was 
demonstrated while performing the duties of secretary 
of the treasury, after Gallatin's retirement, had nearly 
ruined the bank, and had weakened, if not utterly de- 
stroyed, the hopes of many who looked to that institution 
to restore and preserve a sound circulating medium. It 
is true that the bank had maintained specie payments at 
great sacrifice to itself : it had furnished aid to those who 
wanted money to pay to the government and to others. 
Yet the condition of the currency was not satisfactory. 
On the 9th of April the board of directors proposed the 
following mode of relief: — 

1. To continue the curtailments previously ordered. 
2. To forbid the officers in the South and West to issue 
their notes when the exchanges were against them. 3. 
To collect the balances due by the local banks to the 
offices. 4. To claim of the government the time neces- 
sary to transfer funds from the offices where money was 
collected to those where it was to be disbursed, as well 
as like time (until the difficulties of the bank were re- 
moved) to transfer funds to meet the notes of offices paid 
into the bank, or other offices than those where they were 
payable according to their tenor. 5. To pay debentures 
in the same way as the duties on which the debentures 
were secured had been paid. 6. To obtain a European 
loan of $2,500,000 for a period not exceeding three years. 

" These measures, simple and obvious as they were, 
lifted the bank, in the short space of seventy dajs, 1 to a 
state of safety, and even power, enabled it to cease its cur- 
tailments, except at points where it had an excess of cap- 

1 From March G to May 17. 



328 FINANCIAL HISTORY OF THE UNITED STATES. T1819. 

ital ; to defy attacks upon it ; and to sustain other institu- 
tions which wanted aid, and were ascertained to be solvent ; 
above all, to establish the soundness of the currency 
which had just before been deemed so hopeless, and, in a 
single season of business, to give to every office as much 
capital as it could advantageously employ." 1 

As we have seen, the government required every debtor, 
after the 20th of February, 1817, to pay specie, treas- 
ury-notes, or bank-notes redeemable at par in specie. 
Through the agency of the United-States bank, the other 
banks in the principal cities were induced to begin spe- 
cie payments at that time. If the United-States bank 
had not been chartered, it is difficult to see how the 
government could have executed its determination : for 
the State banks certainly would not have resumed before 
the 1st of July, perhaps not then ; and, if they had not, 
where could debtors have obtained the specie needed to 
discharge their indebtedness? If bank-notes had not been 
payable in specie, the government would not have taken 
them , and the only money which it could have received 
would have been a very small amount of specie. To sud- 
denly confine the country to this small resource, would 
have produced the most serious consequences. 

One object, therefore, of establishing the national bank, 
to restore specie payments, was attained. They were 
maintained, too, so long as the bank existed. To keep 
true to this end, the bank had made heavy sacrifices. 
Specie was imported on several occasions at heavy cost. 
To avoid shipping coin from the United States in 1822, 
to pay the instalment due that year to the French Gov- 

1 President Cheves's Exposition to the Stockholders, 23 Niles, p. 89. 



1819.] THE SECOND UNITED-STATES BANK. 329 

eminent by the Louisiana treaty, a loan was negotiated 
in London for the amount required. It could not have 
been collected here, except at great expense ; and the 
drain would have seriously affected all our business 
interests. 

A writer who was strongly opposed to both of the 
United-States banks, and who contended that "the peo- 
ple were at work accumulating the means necessary to 
meet their engagements," and that " the currency would 
have soon become sound and uniform " in 1791 and in 
1817, admitted " that the establishment of the banks may 
have accelerated the resumption of specie payments in 
both cases." And this was the very least that could be 
said b}^ an opponent, concerning the great work of the 
bank in resuming specie payments. 1 

In order to maintain them, it was necessary for the 
bank, in 1819, to contract its discounts, and to demand 
specie from other banks, — a movement which led them 
to reduce their discounts ; and this change of policy, 
which could not be avoided, caused sore distress through- 
out the country. During the years 1815 and 1816 the 
bank circulation increased to $110,000,000 ; while in the 
year 1819 it was reduced $65,000,000, — a reduction of 
fifty-nine per cent. This was an enormous contraction, 
and the evils following it were wide-spread. 2 

1 Remarks upon the Bank of U. S., p. 25. 

2 On the 9th of December, 1819, Condy Raguet was appointed chairman 
of a committee, by the Senate of Pennsylvania, to inquire into the causes 
and extent of the present distress; and on the 29th of January following 
he made an elaborate report on the subject. The varied forms in which 
the distress appeared are thus concisely stated : — 

" 1. Ruinous sacrifices of landed property at sheriff's sales, whereby, in 



O 



/ 



) 



330 FINANCIAL HISTORY OF THE UNITED STATES. [1830. 

Another very important function performed by the 
bank was in equalizing the rates of domestic exchange. 
Much complaining was heard from the dealers in ex- 
change against the bank for doing this, but to the people 
generally the most signal benefits followed. McDuffie, 
however, fell into an error when he calculated the loss 
to the people at $6,000,000 a year from the operations 
of commercial exchange. He estimated the extent of 

many cases, lands and houses have been sold at less than a half, a third, 
or a fourth, of their former value, thereby depriving of their homes, and of 
the fruits of laborious years, a vast number of our industrious farmers. 

"2. Forced sales of merchandise, household goods, farming stock and 
utensils, at prices far below the cost of production. 

" 3. Numerous bankruptcies and pecuniary embarrassments of every 
description, as well among the agricultural and manufacturing as the 
mercantile classes. 

" 4. A general scarcity of money throughout the country, which renders 
it almost impossible for the husbandman, or other owner of real estate, to 
borrow at a usurious interest, and where landed security of the most indu- 
bitable character is offered as a pledge. A similar difficulty of procuring 
on loan had existed in the metropolis previous to October last, but has 
since then been partially removed. 

5 and 7. "A general suspension of labor," and " a universal suspension 
of all large manufacturing operations. 

" 6. An almost entire cessation of the usual circulation of commodities, 
and a consequent stagnation of business, which is limited to the mere pur- 
chase and sale of the necessaries of life, and of such articles of consumption 
as are absolutely required by the season. 

8 and 9. "Usurious extortions," and "the overflowing of our prisons 
with insolvent debtors, most of whom are confined for trifling sums. 

10 and 11. " Numerous lawsuits," and " vexatious losses arising from the 
depreciation and fluctuation in the value of bank-notes, the impositions of 
brokers, and the frauds of counterfeiters. 

" 12. A general inability in the community to meet with punctuality the 
payment of debts, even for family expenses, which is experienced as well 
by those who are wealthy in property as by those who have hitherto relied 
upon their current receipts to discharge their current engagements." — 
Appendix, Eaguet's Currency and Banking, p. 289. 



1830.] THE SECOND UNITED-STATES BANK. 331 

those operations at $60,000,000 a year, and the loss sus- 
tained by the merchants, planters, farmers, and man- 
ufacturers, ten per cent of this sum, — " the excess of 
the rate of exchange between its natural rate in a 
sound state of the currency, and beyond the rate to 
which it had been actually reduced by the operations of 
the Bank of the United States." This annual tax of 
$6,000,000, he affirmed, was levied from the commercial 
cities by those who were engaged in the business of bro- 
kerage. But the brokers, while doubtless making a very 
handsome profit, levied no such tax. As another has 
explained, had the rates of exchange been in reality so 
inequitably unfavorable, remittances would have been 
made in merchandise. Indeed, this was often done ; but 
the results did not essentially vary, for the prices of 
goods, measured in the depreciated local currency, rose 
with its depreciation. If a bill on Boston was at eight 
per cent advance, it would have bought in the market 
from six to eight per cent more produce than the bill of a 
Charleston bank. 1 Had business been transacted in the 
legal money of the land, there would have been no mis- 
conception of the truth of these transactions. Never- 
theless, the dealers in bills of exchange flourished while 
the uncertain sea of exchanges existed, and the United- 
States bank performed a great and valuable work in 
equalizing them throughout the country. 

The bank, says McDuffie, actually furnished a circu- 
lating medium more uniform than specie. Funds could 
be transported from one part of the Union to another, 
through the aid afforded by the bank, at an expense not 

1 N. Am. Rev., vol. xxxii. p. 55. 



332 FINANCIAL HISTORY OF THE UNITED STATES. [1830. 

exceeding one-half, and frequently less than one-quarter, 
of the cost of carrying silver. 

For all the purposes of revenue, it furnished a national 
monetary circulation of perfect uniformity, attaining that 
ideal perfection which even a currency of gold and silver, 
in a country so extensive, cannot possess. All the funds 
of the government were transported from one point to 
another free of expense ; thus furnishing, " both to the 
government and to the people, a currency of absolutely 
uniform value in all places, for all the purposes of pay- 
ing the public contributions, and disbursing the public 
revenue." 

"Upon the whole, then," concludes a committee of 
investigation in 1830, " it may be confidently asserted 
that no country in the world has a circulating medium 
of greater uniformity than the United States, and that 
no country of any thing like the same geographical extent 
has a currency at all comparable to that of the United 
States, on the score of uniformity." 1 

The same view was entertained by the Senate com- 
mittee who inquired " into the expediency of establishing 
a uniform national currency for the United States." Sena- 
tor Smith of Maryland was chairman. After showing 
what currency was furnished by the State banks, the com- 
mittee remark, — 

"There is, however, superadded to this currency, a general 
currency, more known, more trusted, and more valuable, than 
the local currency, which is employed in the exchanges between 
different parts of the country. These are the notes of the na- 

i McDuffie's Report, April 13, 1830, 21 Cong., first session. Clarke and 
Hall, p. 734. 



1830.] THE SECOND UNITED-STATES BANK. 333 

tional bank. These notes are receivable for the government 
by the nine thousand receivers scattered throughout every part 
of the country. They are, in fact, in the course of business, 
paid in gold or silver, though they are not legally or necessa- 
rily so paid by the branches of the bank in every section of the 
Union. In all commercial places they are received, in all trans- 
actions, without any reduction in value ; and never, under any 
circumstances, does the paper, from the remotest branches, 
vary beyond a quarter of one per cent in its actual exchange 
for silver. Here, then, is a currency as safe as silver, more 
convenient and more valuable than silver, which, through the 
whole western and southern and interior parts of the Union, 
is eagerly sought in exchange for silver ; which, in those sec- 
tions, often bears a premium paid in silver ; which is, through- 
out the Union, equal to silver, in payment to the government, 
and payments to individuals in business ; and which, when- 
ever silver is needed in any part of the country, will command 
it without the charge of the slightest fraction of a percentage. 
By means of this currency, funds are transmitted at an expense 
less than in any other country. In no other country can a mer- 
chant do what every citizen of the United States can do, — de- 
posit, for instance, his silver at St. Louis, or Nashville, or New 
Orleans, and receive notes which he can carry with him a thou- 
sand or fifteen hundred miles, to the Atlantic cities, and there 
receive for them an equivalent amount of silver, without any 
expense whatever, and in no possible event an expense beyond 
a quarter of one per cent. If, however, a citizen does not wish 
to incur the anxiety of carrying these notes with him, or to run 
the hazard of the mail, he may, instead of them, receive a draft 
payable to himself or his agent alone, so as to insure the receipt 
of an equal amount, at an expense of not one-half, and often not 
one-fourth, of the actual cost of carrying the silver. . . . This 
seems to present a state of currency approaching as near to 



834 FINANCIAL HISTORY OF THE UNITED STATES. [1829. 

perfection as could be desired ; for here is a currency issued at 
twenty-four different parts of the Union, obtainable by any 
citizen who has money or credit. When in his possession, it is 
equivalent to silver in all his dealings with all the nine thousand 
agents of the government throughout the Union. In all his 
dealings with the interior, it is better than silver ; in all his 
dealings with the commercial cities, equal to silver ; and if, for 
any purpose, he desires the silver with which he bought it, it is 
at his disposal, almost universally, without any diminution, and 
never more than a diminution of one-quarter per cent. It is 
not easy to imagine, it is scarcely necessary to desire, any cur- 
rency better than this." x 

The bank had thus fulfilled the great ends ^or which it 
was created. It had restored specie payments ; it had 
equalized the exchanges; it had furnished a currency 
which was readily accepted throughout the Union; it 
had kept the government deposits safely, and had con- 
ducted all the public business intrusted to it honestly 
and efficiently. So far as the government was concerned, 
there was no ground for complaint, no reason to fear mis- 
management in the future. The ill effects produced by 
wrong management in the beginning had passed away, 
and the great value of the institution was everywhere 
acknowledged. 

When Jackson became President, in 1889, his enmity 
toward the bank was not long concealed. 2 He de- 

i Clarke and Hall, p. 772. 

2 In his first annual message, the President said, "The charter of the 
Bank of the United States exjrires in 1836, and its stockholders will most 
probably apply for a renewal of their privileges. In order to avoid the 
evils resulting from precipitancy in a measure involving such important 
principles, and such deep pecuniary interests, I feel that I cannot, in justice 



1829.] THE SECOND UNITED-STATES BANK. 335 

clared that it was corrupt and dangerous. His opposi- 
tion, in truth, was grounded in no such lofty sentiments. 
He was opposed to it because he could not control its 
offices, and convert the institution into a piece of party 
machinery. Hitherto the hand of the political partisan 
had not been felt in its management. When the attempt 
was made to remove Mason, the president of the branch 
at Portsmouth, whose chief offence seemed to be that he 
" was a friend of Webster," Biddle, the president of the 
bank, thus wrote to the secretary of the treasury con- 
cerning the matter: "For the bank, which has specific 
duties to perform, and which belongs to the country, and 
not to any party, there is but one course of honor or of 
safety. Whenever its duties come in conflict with the 
spirit of party, it should not compromise with it, nor 
capitulate with it, but resist it — resist it openly and fear- 
lessly. In this, its interest concurs with its duty, as, it 
will be found at last, such is the good sense of the coun- 
try, that the best mode of satisfying all parties is to dis- 
regard them all." Unable to remove its officers, or to 
take away its charter, the President sought to cripple its 
resources by withdrawing the government deposits. 

to the parties interested, too soon present it to the deliberate consideration 
of the Legislature and the people. Both the constitutionality and the expe- 
diency, of the law creating the hank, are well questioned by a large propor- 
tion of our fellow-citizens; and it must be admitted by all, that it has failed 
in the great end of establishing a uniform and sound currency. Under 
these circumstances, if such an institution is deemed essential to the fiscal 
operations of the government, I submit to the wisdom of the Legislature, 
whether a national one, founded upon the credit of the government and 
its revenues, might not be devised, which would avoid all constitutional 
difficulties, and, at the same time, secure all the advantages to the govern- 
ment that were expected to result from the present bank." 



336 FINANCIAL HISTOEY OF THE UNITED STATES. [1833. 

Ingham, the secretary of the treasury, was stoutly op- 
posed to their removal. His successor, McLane of Dela- 
ware, in his annual report to the House, remarked, that, 
during the year, incidents had occurred which "tended 
to disturb the public confidence in the management of 
the instiution; and these, taken in connection with the 
necessary arrangements in anticipation of finally closing 
its business, had suggested an inquiry into the security of 
the bank as a depository of the public funds." What, in 
truth, was the condition of the bank at this time ? Its 
liabilities amounted to 137,296,950.20, and the fund to 
meet them $79,593,870.97; showing an excess of $42,296,- 
920.77. The secretary's blow somewhat diminished the 
value of the stock until the true condition of the bank 
became known. Congress treated so grave a matter justly; 
for, after making an investigation of its affairs, the House 
voted, by 109 to 46, " that the government deposits may, 
in the opinion of the House, be safely continued in the 
Bank of the United States." McLane was satisfied, and 
he no longer doubted that the right policy of the govern- 
ment was to let the deposits alone. 1 

Not so thought the President. McLane, therefore, 
stepped aside , and Duane of Pennsylvania was appointed 
secretary, who, the President supposed, would be a supple 
tool for effecting their removal. But in Duane the Presi- 
dent found a very "refractory subordinate." Four mem- 
bers of the cabinet were, indeed, on Duane's side : but 
then he sorrowfully learned that the cabinet was not the 
real advisory board of the President ; there was still 
another, termed the " kitchen-cabinet," which was the 

1 Gordon's War on the Bank of U. S., p. 16. 



1833.] THE SECOND UNITED-STATES BANK. 337 

moving power. The legally formed cabinet had a nomi- 
nal existence. It was a kind of dummy body. Duane 
soon learned what the President expected of him. The 
secretary tried to convince the President of the impolicy 
and injustice of removing the deposits, but in vain. 
Jackson possessed an indomitable will, which towered 
very high above his knowledge, especially of many public 
questions. He was now straining every fibre to destroy 
the prosperity of the country, and knew it not, or else 
did not care. If so, his sin was still less pardonable. He . 
knew perfectly well that Congress was opposed to the 
removal of the deposits, and so were the people, and that 
grave consequences were feared if the event occurred. 
But Jackson was as unmoved by the popular fury that 
raged against him as the Rock of Gibraltar is by the 
winds which whistle around it. Finding that Duane 
would not remove them, he removed Duane, and apr 
pointed in his place Taney, who had previously written a 
letter for the President, giving reasons in favor of their 
removal. 1 No arrangement had been made with the State 
banks ; yet the President, through his secretary, did not 
hesitate to plunge the fiscal operations of the country 
into the dreaded gulf of confusion and uncertainty, at a 
time when they were conducted by the legitimate agent 
of the government with the utmost simplicity, safety, and 
despatch. 2 

1 Narrative and Correspondence concerning the Removal of the De- 
posits. This work was prepared by Duane himself, who published two 
hundred and fifty copies, and sent them to his friends. It is composed 
largely of letters that passed between the President and himself. It is a 
painful exposure of the President's conduct. 

2 Gordon, p. 37. 



338 FINANCIAL HISTORY OF THE TJNITED STATES. [1833. 

The sensation produced by this extraordinary act in 
commercial, financial, and business circles in every part 
of the United States, was unprecedented. The banks 
everywhere, but especially in the commercial cities, were 
compelled to call in their loans, and curtail their circula- 
tion ; trade and commerce became embarrassed ; distrust 
and uncertainty prevailed, putting a stop to enterprise ; 
almost every product was reduced in value, and was un- 
salable ; manufactures were checked, laborers thrown out 
of employment, failures and bankruptcies were of daily 
occurrence; and general financial distress pervaded ,the 
country. 1 

Removed by wish of the President, and contrary to the 
well-known wish of the people and the clearly expressed 
judgment of both Houses of Congress, the entire business 
of the land was fearfully shaken by the event, as by a 
tremendous earthquake, from which it did not recover 
for many a year. 

The bank, having been deprived of the public funds, 
could protect itself only by curtailing its discounts ; and 
this action intensified the prevailing commercial distress. 

At the opening of the next session of Congress, Taney 
communicated a special report on the subject. 2 Declaring 
that by the usage and practice of the government the 
power of removal was intended to be reserved exclusively 
to the secretary of the treasury, and that the exercise 
of this power did not depend merely on the safety of the 
public money in the possession of the bank, nor on the 
fidelity with which it conducted itself, but rather on 

1 Sargent's Public Men and Events, vol. i. p. 256. 

2 December, 1833. 



1833.] THE SECOND UNITED-STATES BANK. 339 

the promotion of the public interest and convenience, he 
then stated the reasons which induced him "to believe 
that it was necessary, for the interest and convenience 
of the people, that the Bank of the United States should 
cease to be a depository of public money." 

Assuming that a new charter would not be granted to 
the bank, it was " obvious that the interests of the coun- 
try would not be promoted by permitting the deposits of 
the public money to continue there until its charter ex- 
pired." 

It was " well understood that the superior credit hereto- 
fore enjoyed by the notes of the bank was not founded 
on any particular confidence in its management or solid- 
ity : it was occasioned altogether by the agreement on 
behalf of the public, in the Act of incorporation, to re- 
ceive them in all payments to the United States ; and it 
was this pledge, on the part of the government, which gave 
general currency to the notes payable at remote branches." 
This obligation on the part of the government would cease 
the 3d of March, 1836, when the charter of the bank ex- 
pired. When this event happened, its outstanding notes 
would lose their peculiar value, and those payable at dis- 
tant places would become as much depreciated as the 
notes of local banks. If, in the mean time, no other cur- 
rency were substituted in their place, it was easy to foresee 
the extent of the embarrassment which would be caused 
by the sudden derangement of the circulating medium. 
He had "no doubt" that the State banks could furnish 
a general circulating medium, quite as uniform in value as 
that which had been afforded by the Bank of the United 
States, " probably more so ; " but the substitution could 



340 FINANCIAL HISTORY OF THE UNITED STATES. [1834. 

not be made at the same moment in every part of the 
Union. It was "essential that the change should be 
gradual; and sufficient time should be allowed to suffer it 
to make its way by the ordinary operations of commerce, 
without requiring a hasty and violent effort." 

Another reason for removing them was the conduct of 
the bank in rapidly curtailing its discounts a few months 
prior to making his report. He then sought to show how 
the institution had concealed its mode of doing business 
from the government directors, " regardless of the duties 
of its agency;" that its own interest was "its ruling 
principle," while the just claims of the public were treated 
with but little regard ; and that there was " sufficient evi- 
dence to prove that the bank had used its means with a 
view to obtain political power, and thereby secure the 
renewal of its charter." 

Congress deemed the secretary's reasons for removing 
the deposits insufficient. Nor did the opinion of the peo- 
ple differ from the opinion of the majority of Congress. 
The " Union Committee," appointed by merchants and 
others of New York to express their views respecting 
the matter, exposed the weakness of Taney's reasoning. 
Albert Gallatin, whose very acute knowledge of finance 
has never been surpassed, if equalled, by any American 
financier, was chairman, and drew the report. 1 

With respect to the first reason assigned by Taney for 
removing the deposits, — that " the public deposits would 
always amount to several millions of dollars, and that it 
would evidently produce serious inconvenience if such a 
large sum were left in possession of the bank until the 

i New York, 1834. 



1834.] THE SECOND UNITED-STATES BANK. 341 

last moment of its existence, and then be suddenly with- 
drawn, when its immense circulation would be returning 
upon it to be redeemed, and its private depositors remov- 
ing their funds into other institutions," — the committee 
remarked that no inconvenience was felt in March, 1811, 
when the charter of the former United-States bank ex- 
pired; although the deposits there, the first of the year, 
exceeded six millions, and, on the day when the charter 
ceased, amounted to two and a half million dollars. But 
Taney, in his annual report on finances, had estimated 
" the balance that would be left in the treasury (that is 
to say, the whole amount of the public deposits) on the 
31st of December, 1834, at less than three millions of dol- 
lars, and that the receipts of 1835 would be less than 
those of 1834." — " This single fact," add the committee, 
" thus officially announced, — the natural and gradual re- 
duction of the public deposits, in the course of the present 
year, to less than three millions of dollars, — refutes all 
the arguments, of every description, urged in justification 
of that measure." 

The committee contended that the superior credit en- 
joyed by the notes of the Bank of the United States was 
due principally to the general confidence in its manage- 
ment and solidity. At the expiration of its charter, the 
notes of interior branches, if found at the seaports, might 
depreciate, unless the bank, which was probable, " should 
find it their interest to pay them wherever presented." 
The obvious mode to lessen the gross amount of these 
notes was a repeal of the law making them receivable 
in payment of debts due to the government. The removal 
of the public deposits could have no effect on the circula- 



342 FINANCIAL HISTORY OF THE UNITED STATES. [1834. 

tion of the notes of the bank. In truth, the amount for 
several months after that event was somewhat increased. 

The curtailment of discounts "was a necessary conse- 
quence of the withdrawing of the public deposits." " The 
author of this measure," say the committee, "is respon- 
sible for all the effects that may have flowed from the 
curtailments. It is idle to say that they have been greater 
than was expected, or made at a different time, or in a 
different manner, from what had been anticipated. If it 
were impossible for the Executive, or for any human being, 
to foresee what the bank, under those circumstances, 
might be compelled or inclined to do, and the effects which 
its acts might have on the currency and commerce of the 
country, — that was a sufficient reason for not adopting 
with precipitation a measure in itself wholly unnecessary. 
But, if there is an excuse for want of foresight, no apology 
can be found for obstinately persevering in an erroneous 
course after the error had been discovered, and the fatal 
effects of the measure had become undeniable." 

It is worthy of note, too, at the very time when the 
curtailment of discounts by the bank was alleged as a 
cause for the removal of the public deposits, Taney did 
this, so he himself declares, to cause the retiring of the 
notes of the bank, the inevitable effect of which move- 
ment was to contract discounts still more. Thus he 
sought to have the bank do the very thing of which he 
accused it. He compelled the institution to curtail dis- 
counts, and then most unjustly blamed it for so doing. 
The fairest construction, perhaps, to put on Taney's 
conduct is, that he did not comprehend what he was 
about, nor the consequences of his own acts. Others 



1833.] THE SECOND UNITED-STATES BANK. 343 

comprehended them clearly enough, but he was finan- 
cially blind. 

Having been removed, Congress could not order the 
secretary to restore the deposits to the bank. Jackson 
was not the man to turn back, whatever might be the 
consequences of standing still or of going forward. Not- 
withstanding the loss and distress into which he plunged 
his country, there was no relenting. 

A few months before the presidential election in 1832, 
the bank put forth a tremendous effort to renew its 
charter. A renewal was granted by both Houses, but 
the bill was vetoed. It could not be passed over the, 
veto, and thus the fate of the bank was determined. 1 
/ During the discussion of the veto in the Senate, Mr.) 
i Clayton 2 of Delaware uttered the following remarkable ~ N , 
prophecy: " In less than four years, the pecuniary distress, { 
the commercial embarrassments, consequent upon the de- 
struction of the United-States bank, must exceed any thing 
which has ever been known in our history. . . . The de- 
preciation of paper operates as a tax on the farmer, the 
mechanic, and all the consumers of merchandise, to its 
whole amount. The loss of confidence among men ; the 

1 Soon after the President's veto, Ingham, Jackson's first secretary of 
the treasury, wrote : ' ' The hank has purified one of the worst currencies 
that ever infested any country or people. It consisted of mere paper, of 
no definite value, accompanied hy worthless tickets, issued from hroken 
hanks, petty corporations, and partnerships, in almost every village. In- 
stead of this, the United-States hank has given us the hest currency known 
among nations. It supplies a medium equal in value to gold and silver 
in every part of the Union. . . . Yet Gen. Jackson would destroy this 
institution, and expose the country to all the evils from which it has so 
happily hut just recovered." 

2 July 11, Cong. Debates, vol. viii. Part I, p. 126a 



J / 



344 FINANCIAL HISTOEY OF THE UNITED STATES. [1836. 

total derangement of that admirable system of exchanges 
which is now acknowledged to be better than exists in 
any other country on the globe ; overtrading and specu- 
lation on false capital in every part of the country ; that 
rapid fluctuation in the standard of value for money, 
which, like the unseen pestilence, withers all the efforts 
of industry, while the sufferer is in utter ignorance of the 
cause of his destruction; bankruptcies and ruin, at the 
anticipation of which the heart sickens, — must follow in 
the long train of evils which are assuredly before us." 

The deposits having been removed, and a renewal of 
the charter refused, the good feeling which had hitherto 
existed between the bank and the government ceased. 
They were no longer friends, but enemies. The bank 
would not allow the officers of the government to inspect 
its books, nor to interfere in its affairs. It declined to 
comply with the order of the secretary of war to deliver 
the books, papers, and funds connected with the disburse- 
ments to officers and soldiers of the Revolutionary war. 
Again and again did the bank refuse to allow the govern- 
ment directors to participate in its business ; and a special 
committee, who were appointed to investigate its affairs 
in April, 1836, were very unfairly treated. 

It procured a charter from the State, and continued to 
do business as a State institution, but re-issued the notes 
of the old bank, and declined to settle with the govern- 
ment. The new bank voluntarily assumed all the obliga- 
tions of the former bank : on the other hand, it took all 
the government stock. Thus it was somewhat peculiar 
with respect to its capital and obligations. It was simply 
the old bank transformed into a new one ; or, rather, it 



1836.] THE SECOND UNITED-STATES BANK. 345 

was the old bank acting under State instead of national 
authority. 

The value of the government stock at this time was 
$7,583,698.59; the par value, $7,000,000. The commis- 
sioners who were appointed by the secretary of the treasury 
to investigate the matter appraised the stock at $8,110,- 
215.09, which, they declared, was at the disposal of a few 
bank directors, of whom the people knew nothing. " The 
people's money is thus seized upon, and detained, for the 
purpose of redeeming notes over and over again, re- 
issued in violation of law, and obligations voluntarily as- 
sumed." On March 3, 1836, the bank stood thus : notes 
in circulation, $21,109,352.23 ; specie, $5,595,077.25 ; and, 
in November, notes in circulation, $9,733,032.28 ; specie, 
$3,275,292.36, — a reduction of nearly one-half in specie, 
and more than one-half in circulation ; although, in the 
mean time, it had contracted a loan in Europe of $6,788,- 
194.44, tind its liabilities were equal to its entire resources. 
After that time its business and specie still further dwin- 
dled ; and an investigating committee predicted that if the 
redeemed notes of the expired corporation continued to be 
re-issued, as they had been, in a few months the whole 
resources out of which the claim of the government ought 
to be paid would be " abstracted, and an entirely different 
responsibility substituted, and one of a very doubtful 
character." 

The remedy proposed was, that until the notes of the old 
bank, returned after the 3d of March, were redeemed and 
not re-issued, and the amount due to the government was 
settled to the satisfaction of the secretary of the treasury, 
the notes of the Bank of the United States, and those of 



346 FINANCIAL HISTORY OF THE UNITED STATES. [1833. 

the new one, should not be received in payment of debts 
due to the government. 1 The bank finally made a prop- 
osition for settling the government claim, which was 
accepted, and duly executed. 2 

When the deposits were removed from the United- 
States bank, the secretary of the treasury placed them in 
State banks, which were called " Pet Banks." These in- 
stitutions were directed by the secretary of the treasury 
to make liberal discounts, in order to relieve the strin- 
gency of the market caused by the new policy of curtail- 
ing discounts, which the Bank of the United States was 
obliged to adopt. This direction was hardly needed; for 
their desire to earn fat dividends led them to increase 
their discounts rapidly, and paper money became more 
abundant than ever. New banks, too, had been chartered 
in every direction, in expectation of the refusal of Con- 
gress and the Executive to renew the charter of the 
United-States bank. At the opening of 1830 the aggre- 
gate capital of the banks in the country was $145,192,- 
268, and their deposits were $55,559,928, — a total of 
$200,752,196. Their loans and discounts at the same 
period were $200,451,214, approaching very nearly the 
aggregate amount of capital and deposits. Eight years 
afterward the aggregate capital of the banks was $290,- 
772,091, and their deposits were $127,397,185, — a total 
of $418,169,276. Their loans and discounts at the same 
period were $525,115,702, or more than twice the amount 
of loans in 1830, and exceeding the aggregate amount of 
capital and deposits $156,946,426. 3 Said Hugh A. Garland 

i Report No. 272, Feb. 22, 1837, 24 Cong., second session. 
2 Act, March. 3, 1837, 24 Cong., second session, Res. 5. 
8 Dem. Rev., vol. xii. p. 426. 



1834.] THE SECOND UNITED-STATES BANK. 347 

of Virginia, 1 " The State banks, within a few years, nearly 
doubled their original number, were greatly enlarged in 
their powers and nominal resources, and made to pour 
forth with prodigal hand their spurious issues of paper 
money, — those pictured shadows, that bewildered the 
brain, intoxicated the hearts of the people, and drove 
them into the maddest schemes of speculation and extrav- 
agance. Never did any nation, in the same space of time, 
make more rapid advances in degeneracy, or approach 
nearer a total abandonment of that great moral law which 
constitutes the well-being of all civil society, and a sub- 
stitution in its place of those time-serving expedients 
of interest and selfishness which never fail to end in 
fraud, oppression, and ruin." 

There were those, even among the President's strongest 
adherents, who saw the danger of issuing bank-notes with- 
out any restriction. In the summer of 1834 a bill was 
enacted, 2 providing for a re-adjustment of the value of 
gold and silver money; and Benton and others confidently 
believed that specie would once more circulate. " The 
Washington Globe," which was the leading organ of the 
administration, indulged in the following strain of ecstatic 
prophecy: "A great stream of gold will flow up the 
Mississippi River from New Orleans, and diffuse itself all 
over the great West. Nearly all the gold coinage of the 
New World will come to the United States. This will fill 
the West with doubloons and half-joes ; and, in eight or 
nine months from this time, 3 every substantial citizen will 

1 An Oration delivered in New York, in 1810, on the Passage of the 
Independent Treasury Bill, p. 25. 

2 June 28. See Part III., chap. 2, on Coinage. » July 16, 1831. 



348 FINANCIAL HISTORY OF THE UNITED STATES. [1836. 

have a long silken purse of fine open net-work, through 
the interstices of which the yellow gold will shine and 
glisten. Every substantial man, and every substantial 
man's wife and daughter, will travel upon gold. The 
satellites of the bank alone, to show their fidelity to their 
liege monarch, will repine at the loss of paper." " Benton 
mint-drops " or " Jackson yellow-boys " were coined in 
considerable quantities ; but not many of them ever shone 
through " the interstices " of the " silken purses " of 
" substantial " or any other kind of citizens. 

This vast increase of banking accommodations led to 
speculations of the wildest character, and planned on the 
grandest scale. One form of speculation was in buying 
government lands. To check it, a resolution was intro- 
duced into the Senate, requiring payment to be made in 
gold and silver, which, however, was rejected. The sec- 
retary of the treasury then issued a circular, known after- 
ward as the "specie circular," requiring payment to be 
made in the precious metals. This circular was drawn 
by direction of the President, beside whom, Senator Ben- 
ton and Mr. Woodbury (the secretary of the treasury) 
were chiefly instrumental in preparing and applying the 
remedy. 

The " circular " set forth, that in consequence of com- 
plaints which had been made of frauds, speculations, 
and monopolies, in the purchase of public lands, and 
of the aid given to effect these objects by excessive 
bank-credits, and other facilities furnished by the 
banks, after the fifteenth day of August, 1 nothing but 
gold and silver, and in proper cases Virginia land-scrip, 
1 The circular was dated July 11, 1836. 



1836.] THE SECOND UNITED-STATES BANK. 349 

would be received in payment for public lands. But 
an actual settler, or a bona fide resident of the State 
where land-sales occurred, was permitted to pay, as 
heretofore, in bank-bills. 

The measure immediately excited general alarm. 
Banks were frightened, and refused to grant further 
accommodations, and called in their loans as rapidly as 
possible. The pressure of the banks was very great. A 
panic had been started by what was termed another " ex- 
periment" with the currency. A great revulsion set 
in : property was sacrificed, and prices marched swiftly 
downward. The annual sale of public land, which 
formerly was from two to four million dollars, had risen 
to twenty-five million dollars ; and a surplus of revenue 
had accumulated in the deposit-banks of twenty-five or 
thirty millions, which was soon to be distributed among 
the States by a law commonly called the " Distribution 
Act," the bill for which was introduced by Henry Clay. 

The circular had a very different effect from what was 
intended. It operated most effectually to banish gold 
and silver. " These," said a trustworthy observer after 
the circular was issued, " are never seen at the West ; 
and a five-dollar bill cannot be changed into specie in a 
ride of thirty miles." 

But the wealthy speculator from Boston, New York, 
Philadelphia, and other places, easily surmounted the 
difficulties raised by this circular. He would arrange 
with persons inhabiting the State where he wished to 
purchase land, and bought it in their names. He needed 
no specie, yet he obtained all the land he wanted ; while 
others, possessing smaller capital, were obliged to carry 



350 FINANCIAL HISTORY OF THE UNITED STATES. [1837. 

specie a long way, which, as soon as paid for land, flowed 
back to the East. 1 

At the next session of Congress, a bill repealing the 
circular passed both Houses by a large majority ; but the 
President vetoed it, and, Congress having adjourned, 
the bill was killed. Had Congress remained in session, 
doubtless the bill would have passed over the veto. 
Thus the evils caused by the circular were prolonged, 
the Executive learning nothing, and determined to pur- 
sue his own way, no matter how costly it might be to 
the business and happiness of the country. 2 

Of course such a flood of paper money could not roll 
over the land very long without causiiig injury. In a few 
months fear struck into the people, and they demanded 
specie of the banks in exchange for their notes. This 
movement immediately exposed their hollowness, just as 
Oro, the war-god of Tahiti (so runs the tradition) dis- 
closed the hollowness of the high peaks of the romantic 
island of Eimeo by hurling his spear over the sea at the 
god who dwelt there. Nearly all the banks failed. The 
people then realized more keenly than ever the loss of 
the United-States bank. Its notes, like the rivers of 
Chaldea when the empire flourished, were watched and 
kept in their courses, and not suffered to overflow or 
work injury, but to minister unto the comfort and 
wealth of the people ; while the notes of the State 
banks were like those rivers after the empire passed 
away, when, not restrained in their courses, and over- 
flowing their banks, they spread over the country, 

1 Benton's Thirty Years in the U. S. Senate, vol. i. p. 676. 

2 Sargent, vol. i. p. 320. 



1837.] THE SECOND UNITED-STATES BANK. 351 

causing pestilential swamps, from which untold injury 
arose. 

When the banks went down, they had the government 
deposits: this was in May, 1837. Van Buren's adminis- 
tration was only two months old. The President was a 
warm admirer of Jackson, and had formally announced 
that he would continue his predecessor's policy with 
respect to the management of the deposits. But the 
" experiment " had suddenly culminated. The govern- 
ment deposits were not in its control, and could not be 
regained ; their transfer from one part of the country 
to another had ceased; and the banks no longer fur- 
nished a paper money of uniform value. On the other 
hand, it fluctuated wildly : the bills of one State were at 
a discount in an adjoining State ; and, the farther away 
they wandered from their home, the more they shrank in 
value. Such was the inevitable result, clearly foreseen 
by many, of President Jackson's " humble efforts," to use 
his own words, " to restore the constitutional currency of 
gold and silver." 

Once more, therefore, the government was confronted 
with a grave question touching its deposits and the circu- 
lating medium. It now essayed a brand-new experiment. 1 
This was nothing less than keeping the deposits itself, 
and transferring and paying them as occasion required; 
while the people were left to regulate the currency them- 



1 It is true that Gen. William F. Gordon of Virginia introduced a bill 
into the House on the 20th of June, 1834, to establish the sub-treasury sys- 
tem; but almost all of Jackson's friends voted against it. See Tract for 
the Times, Wash., 1844, p. 4, and debates in the House, Feb. 11, 1835, and 
afterward. See speech of Silas Wright. 



352 FINANCIAL HISTORY OF THE UNITED STATES. [1837. 

selves. This was a very wide departure from any former 
policy. The mode proposed of keeping the public depos- 
its may be briefly described. The treasury building at 
Washington was to constitute the treasury of the United 
States, and the public money was to be kept within its 
vaults. The mint at Philadelphia, the branch at New 
Orleans, the new custom-houses in New York and Boston, 
were also to contain branch treasury vaults. Places were 
also to be prepared at Charleston, St. Louis, and else- 
where. The treasurer of the United States at Washing- 
ton, and the treasurers of the mints at Philadelphia and 
New Orleans, were to be " receivers-general," to keep the 
public money, and with slightly increased salaries for per- 
forming this additional duty: bonds were to be required 
for the faithful performance of their duties. But Congress 
refused to sanction the experiment. 1 

The action of the executive department of the govern- 
ment was opposed to the wishes of Congress and of the 
country nearly the whole period from 1833 to 1840, with 
respect to the management of the deposits. When they 
were withdrawn from the United-States bank by the sec- 
retary of the treasury, in obedience to the will of the 
President, and delivered to the State banks, Congress con- 
demned the act, and so did the country. The memorials 
sent to Congress testify powerfully that the general senti- 
ment of the people was opposed to the course of the 
Executive. Nevertheless, the change was continued from 
October, 1833, until June, 1836, 2 when the State-bank 
system was finally legalized. This system, however, 

1 Dem. Rev., vol. xviii. p. 327. 

2 Act, June 23, 24 Cong., first session, chap. 115. 



1841.] THE SECOND UNITED-STATES BANK. 353 

exploded the next spring ; and the Executive ordered the 
government officials to keep the public money in their 
own hands. At the extra session of Congress in 1837, 
the Executive recommended the sub-treasury experiment. 
Congress refused to try it, although a majority in both 
Houses belonged to the same political party as the Presi- 
dent. Nevertheless, the system was continued, without 
legislative sanction, until 1840, when Congress finally 
passed a bill legalizing the measure. 1 At the presidential 
election in 1840, a party revolution Otjetir^orT^ana^ the 
sub-treasury system, which had formed a prominent issue 
in the campaign, was unqualifiedly condemned by the 
people. Congress repealed the law, 2 and passed a bill 
creating another national bank. But in the mean time 
the President died; and the Vice-President went over 
to the party that had opposed his election, and he vetoed 
the bill establishing the bank. Congress sought to pass a 
bill authorizing a fiscal agent, which it was supposed the 
President would approve , but they were disappointed. 
The President then brought forward a system called the 
" exchequer plan , " 3 but this Congress would not accept. 
Thus the keeping of the public money remained in the 
hands of the government officials, without legislative reg- 
ulation, until the passage of the sub-treasury bill, in 1846. 4 

1 Act, July 4, 26 Cong., first session, chap. 41. 

2 Act, Aug. 13, 1841, 27 Cong , first session, chap. 7. 

3 The plan was first set forth in a special report by Mr. Forward, the 
secretary of the treasury, Dec. 21, 1841, and afterward by a select com- 
mittee. Caleb Cushing was chairman, and made the leading report, Feb. 
17, 1842, No. 244, 27 Cong., second session Garret Davis made a minority 
report, and John P. Kennedy a counter report. 

4 Act, Aug. 6, 29 Cong., first session, chap. 90. 



354 FINANCIAL HISTORY OF THE UNITED STATES. [1841. 

The system established at that time has been maintained 
ever since, and is so deeply rooted, that no political storm 
is likely to be powerful enough to destroy it. 

During the interval from 1840 until the re-establishing 
of the sub-treasury system, the secretary of the treasury 
deposited the public funds with the banks ; and it may be 
worth while to inquire how the business was managed. 

In New York there were, in 1841, seven banks in which 
the government deposits were kept. Each bank took all 
the deposits for a month. This gave to each bank a cer- 
tain advantage over the rest ; but, at the same time, the 
system established was a conservative one. The follow- 
ing illustration will show more perfectly the working 
of the system. The duties in the month of March, 1846, 
amounted to $2,600,000 for the port of New York. They 
were paid into one bank by all the others. The balance 
in favor of that bank was consequently very large ; and, 
as those balances were rigorously demanded, the debtor- 
banks were obliged to loan cautiously, while it enabled 
the government bank to lend freely, taking advantage of 
the improved value of money, which its own act, operating 
through the other banks, had created. It will be clearly 
seen, that, under such circumstances, the bank would 
naturally be anxious to use the funds at its disposal to the 
best advantage. As the money might be called for at any 
time, stock-loans afforded the readiest means of employ- 
ing the funds profitably, and, at the same time, having 
them at command. A law of the State required these 
institutions to make quarterly returns of their affairs, and 
to state in the returns the amount of stock-loans, with a 
view to checking them. The banks, however, took the 



1846.] THE SECOND UXITED-STATES BANK. 355 

stock as security, and a note payable on demand, which 
was counted as cash on hand. Millions of money were 
loaned in this way to stock speculators, and reported as 
cash on hand to the State comptroller. The general 
result, therefore, was, that under a "special clause," as 
interpreted by the banks, their funds were withdrawn 
from commercial paper, and loaned to stock speculators. 
This mode of using the public funds contributed not a 
little toward the re-adoption of the treasury system in 
1846 ; yet probably those banks, if loaning the govern- 
ment deposits at all, could have found no other customers 
who would have borrowed them on the terms prescribed, 
and which were necessary both for the safety of the 
lenders, and the welfare of the government. 

The opposition to adopting the system in 1846 was 
not so strong as it had been in 1840. The danger and 
evil of employing State banks were too palpable to be 
longer ignored, and the opposition to establishing an- 
other national bank was too great. President Tyler's 
exchequer plan fell flat, and nothing could be done to 
revive it. The only thing left was to divorce the gov- 
ernment from the banks, and restore the sub-treasury 
system. 1 

The law re-enacted was defective. The appropriation 
for making safe depositories of the public money was 
too small. Though disbursing-officers, in common with 
others, were prohibited, under severe penalties, from lend- 
ing or privately using the public money, or depositing 
it in banks, or from paying to the public creditors any 
thing but gold and silver, no places were specially pro- 

1 Dem. Rev., vol. xviii. p. 328. 



356 FINANCIAL HISTORY OF THE UNITED STATES. [1855. 

vided for tliem in which to deposit their funds. This led 
to great irregularities. In not a few cases the govern- 
ment collected its dues in gold and silver for the benefit 
of the banks, and through the agency of its disbursing- 
officers ; and the banks employed by them paid the public 
creditors with bank-notes, instead of the legal money of 
the United States. 

Notwithstanding the imperfect manner in which the 
law was executed, much good was accomplished. All 
receipts for lands, customs, and other public dues, were 
paid in gold and silver and treasury-notes ; and these 
were employed by the treasurer in making payments. 
In this way a stream of gold and silver was set in motion, 
limited indeed, and running chiefly from the public de- 
positories to the bank, and then returning. But it 
swelled to larger dimensions. 

When the system was re-established, large loans were 
necessary; for the war with Mexico was then raging. 
They were effected without the agency of bank-notes and 
bank-credit ; and all the important and fiscal operations 
of the United States were conducted without disturbing 
the business of the banks or of the merchants. 

Gouge, who made a special report of the workings of 
the sub-treasury in 1855, and another the year afterward, 
affirms that the banks would have expanded their issues 
more, had the sub-treasury system not been in existence. 
" If the public money had been deposited with them, they 
would have made it the basis of new issues and dis- 
counts. Our importations of foreign commodities would 
have been much greater than they have been, and the 
attempt to pay for them would have drained the country 



1855.] THE SECOND UNITED-STATES BANK. 357 

of its specie. The constitutional treasury system, and 
that alone, has saved the country from scenes of inflation 
and speculation, such as we had in 1835 and 1836, which 
would necessarily have been followed by scenes of dis- 
tress and disaster, such as we had from 1837 to 1843." 
This is admitted by many who were once the active op- 
ponents of the system. 

At the same time Gouge * answered the objection touch- 
ing the unproductiveness of the money in the treasury 
offices. The same thing, he declared, might be said of the 
goods in the warehouses of the merchants, or the grain in 
the granaries of the farmers. In such a country as ours, 
there ought to be somewhere a reserved fund of gold and 
silver ; and no more appropriate place could be found for 
such a reservoir than the United-States treasury. 

One evil arising from the system, related to the man- 
ner of transferring the public funds. One mode was to 
transfer specie from one place to another, as the case 
required ; but this involved time, risk, and expense. An- 
other mode was to transfer drafts to bankers, brokers, 
and others, and allow them the use of the money for 
such time as would be regarded a compensation for the 
expense of transporting specie from one depository to 
another ; but losses occurred under this system, and it 
also gave rise to favoritism. By properly timing the 
transfer-drafts, so that one should lap upon another, 
the permanent use of public money was given to official 
favorites. Thus there was a constant temptation to make 
these transfers, even when not needed for the public ser- 

1 See Gouge's Reports, 1855, 1856, Bank Mag. vol. ix. p. 625; Ibid., 
vol. x. p. 609. 



358 FINANCIAL HISTORY OF THE UNITED STATES. [1855. 

vice. Under this system of credit transfers, Gouge re- 
ported that the monthly statements appeared to be about 
three times as great as they were under the previous cash 
system. Under that, the transfers to New Orleans were 
about 138,000 a month : under the credit system, they 
swelled to 1227,000. In like manner they were increased 
at Washington City from $135,000 to $225,000 a month. 
In 1854, however, this evil was corrected. All persons 
who had been employed to make transfers on time were 
required to pay; and in the end the government sus- 
tained no very heavy losses. Three years afterward all 
disbursing officers were required to deposit the money 
intrusted to them with the treasurer, or an assistant 
treasurer, of the United States, and "to draw therefor 
the sum only in favor of the person to whom payment" 
was to be made, except for sums less than twenty dollars. 



1816.] TARIFF LEGISLATION. 359 



CHAPTER III. 

TARIFF LEGISLATION". 
1816-1824. 

Immediately after declaring peace, foreign goods in 
vast quantities were sent to our shore. Though a heavy 
duty was levied on them, it formed a barrier not more 
effective in checking their importation than does a stone 
in retarding the movement of a stream greatly swollen by 
heavy rains. These goods were sent here by two classes 
of persons, induced or impelled by different motives. 
One class was composed of speculators, who sent vast 
quantities of goods to many quarters of the globe, expect- 
ing to realize enormous gains from their ventures. Much 
of the merchandise now coming to America was shipped 
by them. The losses incurred in many of these ventures 
were enormous. Lord Brougham, when describing the 
distress of Great Britain in 1816, remarked that he was 
very far from placing the vast exports which the peace 
with America had occasioned "upon the same footing 
with those to the European market the year before, both 
because ultimately the Americans will pay, which the 
exhausted state of the Continent renders very unlikely, 
and because it was well worth while to incur a loss upon 
the first exportation, in order, by the glut, to stifle in the 



360 FINANCIAL HISTORY OF THE UNITED STATES. [1816. 

cradle those rising manufactures in the United States 
which the war had forced into existence, contrary to the 
natural course of things." 1 Notes having been given by 
the speculators for the larger portion of their goods, they 
could not be kept very long, and consequently were 
forced on the market. A great many manufacturers, 
too, in order to meet their obligations, were obliged to 
send their products here, and sell them for what they 
would fetch. Vast quantities were sold at auction, prices 
fell, and the American manufacturer's vision of wealth 
suddenly vanished. His day of prosperity had been brief, 
— only an arctic summer. His future was filled with 
darkness and fear. 2 

Congress, manufacturers, and the people generally, un- 
derstood these things before attempting to revise the 
war-duties. Yet having been laid for a temporary end, 
it was necessary to revise them. Congress referred the 
subject to the secretary of the treasury, Dallas, who 
reported at the December session in 1816. He said that 
three objects ought to be kept in view: first, of raising, 
by duties on imports and tonnage, the proportion of public 
revenue which must be drawn from that source, sec- 
ondly, of conciliating the various national interests, — 
agriculture, manufactures, trade, and navigation, and, 
lastly, of rendering the collection of the duties conven- 
ient, equal, and certain. 

The amount recommended by the Committee of Ways 
and Means to be raised from imports, was adopted by 
Dallas as the basis of his estimate. The amount was 

1 Hansard's Pari. Debates, first series, vol. xxxiii. p. 1099. 

2 Report of Com. on Manufactures, N. Y. Leg., 1817, 12 Niles, p. 235. 



1816.] TARIFF LEGISLATION. 361 

817,040,000. The addition proposed to the duties exist- 
ing prior to the Act of July, 1812, was an average rate 
of forty-two per cent. The whole amount of revenue 
required was fixed at $24,000,000 ; and the balance was 
to come from internal sources. 

Dallas declared there were but few, if any, govern- 
ments which did not regard the establishment of domestic 
manufactures a chief object of public policy. The United 
States had always thus regarded it. There were those, 
indeed, who contended, that, in applying industry to man- 
ufactures and commerce, all should be left to pursue their 
own course, untouched by the hand of the government. 
Without examining how far this opinion was sanctioned 
by experience, Dallas remarked that American manufac- 
tures, particularly those which had been introduced during 
the restrictive system and the war, owed their existence 
exclusively to the capital and the skill, the enterprise and 
the industry, of private citizens. The demands of the 
country, while the acquisition of supplies from foreign 
nations was either prohibited or impracticable, might 
have afforded a sufficient inducement for the investment 
of capital, and this application of labor ; but " the in- 
ducement in its necessary extent " must fail, he declared, 
when the day of competition returned. The preservation 
of the manufactures, which private citizens, under favor- 
able auspices, had constituted the property of the nation, 
became a consideration of general policy, to be resolved 
by a recollection of past embarrassments, by the certainty 
of an increased difficulty of re-instating upon any emer- 
gency the manufactures which should be allowed to per- 
ish, and by a just sense of the influence of domestic 



362 FINANCIAL HISTORY OF THE UNITED STATES. [1816. 

manufactures upon the wealth, power, and independence 
of the government. 1 

Such were the weightier thoughts of Dallas, who was 
now one of the foremost men in the republic. The 
majority of the Committee of Ways and Means agreed 
with him ; and accordingly, in March, the chairman, Mr. 
Lowndes, reported a bill to regulate the duties on imports 
and tonnage. Mr. Clay, for the first time, appeared as the 
advocate of " a thorough and decided protection to home 
manufactures by ample duties." The debate in the com- 
mittee of the whole began the 20th of March, and con- 
tinued until the 8th of April. Many speeches were 
delivered. Numerous amendments were offered, and 
several were adopted. Some of these amendments were 
for increasing the tariff, and others for diminishing it. 
Randolph was opposed to promoting the growth of 
manufacturing establishments to the extent and in the 
manner proposed by the bill, and offered a motion strik- 
ing out the minimum duty of twenty-five cents a square 
yard on cotton goods. Calhoun replied to him, and re- 
marked that the debate assumed a new aspect from Ran- 
dolph's motion, as it was introduced professedly on the 
ground that manufactures ought not to receive any 
encouragement. He considered the subject before the 
House to be one that was connected with the security 
of the country. The security of a country depended on 
its spirit and its means ; and, modified as the industry of 
the country then was, its moneyed resources must, to a 
great extent, fail whenever it had the misfortune to be 
involved in war with a power dominant upon the ocean. 

i 3 Finance, p. 85. 



1816.] TAKIFF LEGISLATION. 363 

It must ever be considered the plain dictate of wisdom, 
In peace prepare for war. What, then, were the resources 
of this country, and what were the effects of war upon 
them ? Commerce and agriculture, till lately almost the 
only, still constituted the principal, sources of our wealth. 
So long as these were not interrupted, the country pros- 
pered; but war, as we were now circumstanced, was 
equally destructive to both, since both depended on for- 
eign markets, from which we were cut off as soon as we 
became involved in war with a maritime power. 

Sectional and local interests were the centres around 
which spun the debate. Thus it has been in every sub- 
sequent discussion of this subject. Every speaker has 
acted as a reflector of the wishes of his constituency, 
instead of shining as an independent light. 

New England was strongly opposed to protection as a 
principle, because her interests at that time were chiefly 
commercial. Kentucky favored protection because she 
was interested in the growing of hemp, and the manu- 
facture of cotton bagging. Pennsylvania had been the 
mother of protection in order to develop her iron inter- 
ests. Wool-growers and wool-manufacturers were on the 
same side. They were located partly in Connecticut, but 
were more numerous in New York. Southern members 
were divided, though quite generally they were in favor 
of the bill. Their chief reason for supporting it was to 
protect the banks, in that section of the country, which 
were not strong, and which feared that the purchase of 
India cottons might drain them of their specie, and 
leave only the dregs of their paper money. To protect 
the Southern banks, therefore, the members from that 



364 FINANCIAL HISTORY OF THE UNITED STATES. [1816. 

section were willing to impose a duty on cotton goods ; 
but to get such protection it was necessary to extend the 
application of the principle to other articles. Louisiana 
favored the bill in order to develop her sugar industry. 1 

The bill passed the House by a large majority ; nor was 
its passage through the Senate long delayed. 2 The bill 3 
was constructed on the principle of imposing duties 
virtually prohibitory on foreign articles of which a 
full domestic supply could be produced, and a duty of 

1 "While the bill was under discussion, a member of Congress thus wrote 
to one of his friends about it: "I am vexed at the narrow-minded policy 
which prevails among many members. They came here to legislate for 
this great and growing nation; and they bring with them, and retain, all 
their local prejudices and distinct interests, and lose sight, or rather never 
get a sight, of the general interest. . . . The representatives of the sugar- 
growing States insist on a certain duty upon that article, and the East pre- 
sent a solid phalanx against it. The consequence, I doubt, will be that 
the South will unite against the duties in favor of woollens. . . . One 
would suppose that sheer interest would induce the opposite extremes of 
our country to be liberal to each other, to compromise, and make some 
mutual sacrifices for the good of the whole. The order of the day seems 
to be, to catch and keep, and huckster, sectional interests, without regard- 
ing the nation as a great whole." — 10 Niles, p. 81. 

2 " The tariff of 1816 first distinctly proposed protection as an end; and 
it is an interesting fact, that, on that ground, it received the support, not 
only of the Northern manufacturers, but also of the cotton-growers of the 
South, who wanted protection for their new staple against the competition 
of those countries from which the principal supply of it was then derived " 
(N. Am. Rev., vol. xcv., p. 463). In Cambreling's Report, Jan. 11, 1837, 
No. 86, 24 Cong., second session, the committee said, " There was danger 
that the sudden renewal of our intercourse with foreign nations, with 
whom we exchanged productions, would give a blow to manufactures from 
which they would not recover in many years. There was a general desire 
to moderate the shock; and the duties levied by the tariff of 1816 were, in 
some instances, higher than they were before the war, owing to its heavy 
expenses." 

3 April 30, 1816, 14 Cong.,'first session, chap. 107. 



1816.] TARIFF LEGISLATION. 365 

twenty per cent on those which could not be wholly 
supplied at home ; while on a third class, embracing 
articles of large consumption chiefly produced abroad, the 
duties were adjusted with a view to raising the greatest 
revenue. 

Among the more noteworthy features of the bill was 
the increase in articles charged with a specific duty. The 
" minimum principle " was really an extension of the same 
idea. This provided that all fabrics of cotton invoiced 
at less than twenty-five cents per square yard should be 
taken, in the computation of the duty imposed, to have 
cost that price at the place whence they were imported. 
By this device the normal rate of duties was doubled, and 
even trebled, on the cheaper and more necessary kinds of 
goods. It effected an absolute prohibition on low-priced 
cloths, which were thereafter produced in this country. 
" This arrangement," says the " Democratic Review," 1 
" was adopted by Congress with two distinct objects, both 
of which undoubtedly influenced the different parties ac- 
cording to their respective peculiar views, — the preven- 
tion of the importation of the cheap cotton cloths of 
India, whither none of the raw material produced by this 
country was exported, and in payment for which remit- 
tances in specie had to be made to a large amount ; and 
the immediate benefit of our own manufacturing estab- 
lishments : the latter consideration being naturally de- 
cisive with the North and East, while the former was 
doubtless mainly influential upon the South, whose banks 
were in a state of suspension, which made the exportation 
of specie and no cotton to India especially odious." This 

i Vol. ii. p. 39. 



366 FINANCIAL HISTORY OF THE UNITED STATES. [1830. 

principle, of which the people were to hear so much in 
future years, was introduced by South Carolina. 1 

What consequences may be fairly traced to this legisla- 
tion? The law was regarded sufficient by many to pro- 
tect the home manufacturer under a normal condition of 
things, such as Niles had prophesied would be reached 
" by and by." But auctions multiplied, at which goods 
were sold at very low prices. A manufacturer wrote to 
Niles soon after the law was passed, "I have it in my 
power to state I can manufacture broadcloths and cas- 
simeres, fine or coarse, as cheap as they can be regularly 
imported, and make a handsome profit; but I cannot 
come into competition with the sacrifices now making, 
nor do I wish it." 2 The foreign goods with which the 
country was inundated, during the first year of peace, 
amounted to $14,685,399. This was more than double 
the quantity that could be consumed. No wonder the 
prices fell swiftly and heavily. 3 Through the machinery 
of auctions, goods were drawn into every nook of the 
country. 

They were often sold to the consumer on a credit of 
six, nine, or even twelve months. With low prices and 
long credits, the temptation to buy could not be resisted. 
The farmer and his family were just as eager to make 
purchases as any other class. By so doing they under- 
mined the factory and their own house. During the war, 
many had been induced to expend large sums in intro- 
ducing and breeding merino sheep, which had so in- 
creased as to form a considerable item of wealth. With 

1 Nathan Appleton, What is a Revenue Standard ? p. 7. 

2 11 Niles, p. 79. 3 11 Niles, p. 80. 



1821.] TARIFF LEGISLATION. 367 

the closing of American factories in 1816, sheep-raising 
declined, and the wool produced was exported chiefly to 
Great Britain. It is said that thousands of them were 
killed, and tried for tallow. 1 

The skies cleared a little after a few years ; the prices 
of woollen goods advanced ; and other individuals pur- 
chased the establishments erected during the war, and set 
them a-going. Their success tempted others to adven- 
ture. In 1821 the consumption of wool exceeded the 
amount raised, and a small quantity was imported. But 
the sun did not shine long. Soon our markets were over- 
stocked with British woollen goods, which were sold, on 
account of the manufacturer or British agent, at auction, 
and for less than their actual cost. 2 Unless this huge 
wave of importation could be checked, the second set of 
woollen-manufacturers were sure to be swamped, and 
more quickly than the first had been. They loudly cried 

1 Martindale, — from whose speech, delivered in the House in February, 
1824, many valuable facts may be gathered, — in drawing a picture of this 
period, said, " While this process of waste and devastation was going on, 
the provision-market was depressed also. There was little demand for the 
farmer's provisions, for his beef, pork, and wheat. The price was greatly 
reduced. But the habits of the farmer and his family were formed, and 
suited to better times. The customs, tastes, and fashions of the country, 
and his immediate neighbors, imposed a kind of moral necessity upon him 
to measure his expenses by theirs, not by his means. His expenses were 
greater than his income. The consequences were inevitable : his cash 
was first exhausted, and next the produce of his farm ; his credit next, and 
(by a mortgage) next the farm itself. The expenses which produced the 
mortgage prevent the redemption. The farm is sold to pay for foreign 
goods, and the merchant becomes the purchaser. This is no unreal pic- 
ture, which has no original in nature." 

2 " Anterior thereto, our own merchants imported, on their own 
account, and at merely a fair mercantile profit, goods equal to the 
wants of the country." — Memorial, Stale of N. Y., 1824, pp. 3, 4. 



368 FINANCIAL HISTOEY OF THE UNITED STATES. [1831. 

out to the government for help, for there was no prospect 
of getting relief from any other quarter. 

The imposition of the twenty-five per cent duty on 
cotton goods, with the minimum valuation, was perhaps 
the most successful outcome of the tariff of 1816. The 
friends of protection had advocated the doctrine, that, 
while the imposition of a higher duty for a time might 
enhance prices to the consumer, competition at home 
would reduce them ; so that, in the end, they would be 
lower than if our dependence were wholly or chiefly on 
a foreign market. The cheap cottons of India were ex- 
cluded by the operation of the law , our wants were soon 
abundantly supplied by American manufactures ; a fabric 
of better quality was made ; and the cost to the consumer 
was lessened. This was indeed the most conspicuous 
triumph to the manufacturer and to the consumer by the 
operation of the law; yet the benefits to both classes in 
the manufacture and purchase of leather, boots and shoes, 
harnesses, saddles, bridles, cabinet furniture, carriages, 
hats, nails, shovels, and spades, may be mentioned. 1 

Clay had been one of the most zealous members of 
Congress in advocating high duties. He lived in a dis- 
trict where the cultivation of hemp was an important 
industry. Prior to the war, the towns of Inverness and 
Dundee, in Scotland, had supplied this country almost 
wholly with bagging for cotton. During the war the 
manufacture of this article was attempted. The prices at 
first demanded were very high ; but, when the war closed, 
the prospects of the American manufacturer immediately 
changed. England had purchased vast quantities of 
1 See Condict's Speech, April, 1824, 18 Cong., first session. 



1833.] TARIFF LEGISLATION. 369 

hemp from Russia, during the war, to be used in the navy ; 
but, with the return of peace, much was sold by the gov- 
ernment to the manufacturers at Inverness and Dundee, 
who made it into bagging, and sent it to the United States. 
They crushed the American manufacturer. But having 
achieved the victory, the price of the article to the cot- 
ton-grower was immediately raised; and Clay affirmed, 
in 1824, that "the extra price would be more than 
equal to ten years' protection of our fabric." The 
American manufacturer had been overthrown, because 
his capital was too small to cope successfully with his 
foreign competitors. They continued to hold the market 
until 1822, when the manufacture of the article in Ken- 
tucky was revived ; and during that year a million yards 
were made at Lexington, and the price was reduced 
from thirty-five to twenty cents per yard. Such was 
the effect of the tariff with regard to the manufacture 
and consumption of hemp. 

In passing, it may be shown how the law affected the 
importation of spirituous liquors. Formerly twelve to 
fifteen million gallons a year had been imported. An in- 
come had been derived from that source, amounting nearly 
to two-fifths of the whole revenue. By the new tariff, 
the quantity imported was reduced to about four million 
gallons per annum. The use of spirits, however, had not 
diminished : on the other hand, it had increased in conse- 
quence of the cheapness of the domestic article and in- 
creased population. The tariff, therefore, had greatly 
reduced the importation of spirits ; but, as it was a luxury, 
it should have been subjected to an internal duty. It was 
very poor statesmanship to suffer this article, which is 



370 FINANCIAL HISTORY OF THE UNITED STATES. [1818. 

singled out by so many nations for heavy taxation, to bear 
a burden so light. 1 

Let us now consider how the iron-manufacturers fared 
after the enactment of this law. The most important 
establishments were just beginning to manufacture, when 
the law was passed. They had yet to acquire skill in 
management, system, — all the indispensable knowledge, 
which could be acquired only by experience. Nine-tenths, 
perhaps, of the owners, were in debt. In every respect 
these were infant manufactures. Notwithstanding the 
barriers imposed by law against importing foreign prod- 
ucts, they were easily surmounted; and many of our 
manufacturers fell an easy prey to their mighty rivals. 
First went all the newly erected manufactories of earthen- 
ware. Of these and their workmen, no more was heard, 
half a dozen years afterward, than if they had never ex- 
isted. In the same way went most of the glass-factories, 
and the manufactures of white and red .lead. The manu- 
facture of iron continued longer, but in a feeble way, 
dwindling every year, and gradually sinking under foreign 
importations. During the four years between 1817 and 
1821, the holders of property in the United States were 
supposed to have suffered a depreciation of nearly eight 
hundred million dollars. " General bankruptcy spread its 
darkness over the land ; many of the wealthiest families 
were reduced to poverty; laborers suffered for want of 
bread ; improvements of all sorts were abandoned ; and a 
scene of the most intense national distress ensued." 2 

The terrible condition to which the iron-manufacturers 

1 See Mallory's Speech, February, 1824, 18 Cong., first session. 

2 Memorial, N. Y. Convention, Jan. 22, 1833, p. 9. 



1818.] TAELFF LEGISLATION. 371 

were reduced, after the war, may be shown more vividly 
by considering what befell those in a single locality. In 
the county of Morris, New Jersey, there were about forty 
manufacturing concerns at the close of the war. Of these, 
all save four or five were either abandoned or sold during 
the next eight years. Those that withstood the shock 
had accumulated wealth when the business was profitable, 
and, during the period of depressed prices, merely con- 
verted the surplus produce of their farms into cash by 
the operations of their forges, following the iron business 
as a secondary employment. Every man who made it his 
principal business, who sold his iron and purchased his 
provisions and stock, was ruined. His forge, his lands, 
his goods and chattels, were all struck off under the sher- 
iff's hammer, at public auction. He himself was driven 
to jail. His workmen were unemployed : some of them fol- 
lowed their employer to prison ; others emigrated to new 
countries. Their families were reduced to abject want, 
and compelled to ask relief from the town, or resort to 
beggary. 

In 1818 * the iron interests were suffering so severely, 
that a duty of seventy-five cents per hundred pounds, or 
fifteen dollars per ton, was imposed. With this advance, 
many of the iron-works in the country revived ; and, by 
practising rigid economy, their owners were able for a 
time to continue the business. But the general peace de- 
clared in Europe, and the disbanding of about six hun- 
dred thousand men, 2 so long employed in arms, affected 
the price of labor , and the manufacturers of Sweden, 

1 Act, April 20, 15 Cong., first session, chap. 103. 

2 See Spencer Walpole's Hist, of England, vol. i. chaps. 1 and 2. 



372 FINANCIAL, HISTORY OF THE UNITED STATES. [1823. 

Eussia, and England, could produce their goods so cheaply, 
that once more they undersold the American manufac- 
turer. The importations of iron in 1821, '22, and '23 
were so enormous that the American manufacturer was 
driven from the field. The government was as powerless 
to protect him from the competition of foreigners, as 
were the gods of antiquity, taken by each trade for its 
special protection, to prevent the coming and work of the 
destroyer. The average annual import had been about 
twenty thousand tons; but in 1823 these figures were 
exceeded by eleven thousand tons. Loudly did he cry, 
in union with other manufacturers, for more strenuous 
governmental protection. 

Of the many industrial enterprises which had been 
launched during the war with so much confidence, only a 
few had had a prosperous history. Many had been hope- 
lessly wrecked ; while others were thumping against the 
rocks, and threatened with speedy ruin. 1 The magnitude 
of the dangers to which American manufacturers were ex- 

1 The Memorial of the New-York Chamber of Commerce, in 1824, to 
Congress, declared that the tariff of 1816 had so far fostered domestic 
manufactures, that they soon recovered from the embarrassmeuts which 
followed the great influx of foreign goods in 1815, and had since, in most 
cases, when managed with skill and prudence, and aided by sufficient 
capital, been prosperous and profitable. " We do not hesitate to assert," 
the Memorial continued, " that money vested in such establishments has 
yielded better returns than money employed in commerce, navigation, 
or agriculture. Since that tariff has been in operation, and charges on 
importing foreign goods (including duties, and premiums on exchange) 
has varied from forty to fifty per cent on the first cost of those which 
pay ad valorem duties, and a much higher rate on those charged with 
specific duties, the premium to our manufactures has consequently been 
from two-fifths to one-half of the first cost of all foreign articles which 
come into competition with our domestic products." — p. 3. 



1823.] TARIFF LEGISLATION. 373 

posed, was not seen by them in the beginning. They did 
not consider that a great market, which their British breth- 
ren had held for more than two hundred years, through 
legislation, would, if possible, be retained through the 
might of capital, experience, and fraud. Lord Brougham's 
advice about strangling the infant manufacturers in 
the United States was hardly needed: it was followed 
unhesitatingly, and, so far as we know, without remorse. 1 
Necessity, too, often compelled the British manufacturer 
to unload upon our shore, however great might be his 
sacrifice. The cotton-manufacturers, indeed, had pros- 
pered , and the force of the huge wave of competition had 
been broken by the Alleghanies. Westward the iron 
manufacturers found a market for their wares at remun- 
erative prices, but elsewhere the shock sustained by them 
had been terrific. 

Much too severe was the pressure upon them from 
without , but they were also heavily handicapped by many 
causes at home, the probable consequences of which they 
ought to have considered. Many of their factories had 
been built with borrowed money possessing an inflated 

1 "It is notorious," says Niles, "that immediately after the close of 
the revolutionary war, great sums of money were expended to destroy 
our flocks of sheep, and ruin our rising manufactories. They "bought up 
and immediately slaughtered great numbers of that useful animal, and 
spared no expense to send ' home ' the few artists that had struggled 
hither, with their machines and implements of trade. These things are 
just as well known and established as that they are doing the same 
things now [July, 1818]. I am perfectly assured that in one vessel there 
went, from the United States to England, between ten and twenty 
manufacturers (natives of that country), passage free, and with hand- 
some bounties ; and I am quite satisfied that a very extensive business 
has been done in this way." — 10 Niles, p. 322. 



374 FINANCIAL HISTORY OF THE UNITED STATES. [1833. 

value. With the settling-back of values, and a contrac- 
tion of the circulation, the burden of the manufacturers 
was greatly increased. The experiment would have been 
hazardous, even if they had fully owned their factories 
and machinery, and had possessed a working-capital of 
their own. Owing vast sums, and daily witnessing a 
decline in the value of their products, the hour came 
when they sorrowfully realized the hard conditions envi- 
roning them, and the difficulty of achieving success. 

Nevertheless they gained something: they acquired 
precious lessons of experience. Their necessities gave 
birth to greater economy and skill. Strange, indeed, had 
no one gained any thing amid so much misfortune and 
disappointment. But the consumer had gained more. 
He had bought at low figures. Meantime, hope perished 
not. Trusting to the government for further aid, the 
manufacturers continued the struggle. 



1824.] TARIFF LEGISLATION. 375 



CHAPTER IV. 

TARIFF LEGISLATION. 
1824-1832. 

The tariff of 1816, therefore, had sorely disappointed 
the manufacturers. Many branches of industry had been 
utterly destroyed: others were desperately continuing 
the unequal contest, hoping for a better day. Since the 
government had undertaken to protect them in their 
endeavors, they believed the government would not aban- 
don them utterly to the fate of stronger competitors. 
The cotton-manufacturers were the only class who had 
held their ground, or attained any satisfying success. 
They, for the most part, were not disappointed with the 
results of their experiment. 

The ill effects of foreign competition, as we have seen, 
appeared early ; and the cry was soon heard for more gov- 
ernmental protection. Save raising the duties on iron 
in 1818, and reducing those on wine the next year, 1 the 
tariff of 1816 lasted eight years, when the subject received 
another elaborate discussion, from which emerged the 
tariff of 1824. 2 

The bill was reported to the House by the chairman 

1 Act, March 3, 1819, 15 Cong., second session, chap. 82. 

2 May 22, 18 Cong., first session, chap. 136. 



376 FINANCIAL HISTORY OF THE UNITED STATES. [1834. 

of the committee on commerce and manufactures. The 
duties proposed were on two distinct classes of articles. 
The first class embraced silks, linens, cutlery, spices, and 
some other commodities of less importance ; the importa- 
tion of which did not interfere with the business of any 
home manufacturer, or with any manufacture for which 
the country was then prepared. But the most important 
duties proposed in the bill were of a protective nature. 
These were laid on iron, hemp, glass, lead, wool, and 
woollen goods. 

The debate was hottest and most protracted with 
respect to the duties which should be imposed on cotton 
bagging and iron. 1 Fuller of Massachusetts moved to 
reduce the duty proposed on iron, which was an increase 
of seven dollars and a half per ton. He declared that the 
increase would enhance the cost of the implements of 
husbandry and of the mechanic arts ; but, of all classes, 
the ship-builders would suffer most from the pressure of 
this new burden. 

Buchanan replied. For a time there was prosperity 
among those iron-manufacturers who resided some dis- 

1 Trimble of Kentucky said, during the debate, " So abundant was 
hemp in the Western country, that, if we impose only such duty as will 
give the farmer a fair minimum price, the farmers there will keep down 
the maximum to the minimum nearly, and Mr. Trimble pledged himself 
that the manufacturers of the West would supply the whole country with 
bagging at not exceeding twenty-two and a half cents per yard, if Congress 
would grant them protection, and that they would keep it down to that 
price. But, by laying a proper duty, the market must first be made steady 
in its character, so that the foreigner cannot destroy the hemp grower and 
the manufacturer both by excessive importations. Bagging would be sold 
cheaper as soon as hemp was allowed the same protection as was given to 
the Southern cotton." 



1834.] TARIFF LEGISLATION. 377 

tance from the seacoast, and in a neighborhood where a 
demand existed for all the iron they could manufacture. 
Foreign iron, before it could come into competition with 
theirs, must, in addition to the duty, pay the cost of 
transportation into the country. Such individuals, by the 
ruin of rival manufacturers, and the consequent destruc- 
tion of domestic competition within their sphere, had 
become the monopolists of the neighboring markets. In 
this manner the former was compelled to pay a much 
greater price for his iron than he would if the protecting 
power of the government recalled into existence those 
rival manufactures which had sunk under its neglect. 
The manufacturers residing in the interior, who had no 
market except in the Atlantic cities, in addition to the 
cost of their iron, were compelled to pay transportation 
upon it to a market where it came into competition with 
that from Russia and Sweden ; and, under the present 
tariff, they must be ruined if they continued in the 
business. In fact, most of them who were thus situated 
had been compelled to stop. A few years before, the 
traveller going into the mountainous districts of Penn- 
sylvania would have found a great number of furnaces 
and forges in active operation. Their owners were not 
only prosperous, but they spread prosperity around them. 
These manufactories presented the best and surest mar- 
ket to the neighboring country for the products of agri- 
culture. They diffused wealth among the people, money 
circulated freely, and the manufacturer and the farmer 
were equally benefited. The present aspect of those dis- 
tricts presented a melancholy contrast to that which he 
had described. It was a just comment upon the policy 



378 FINANCIAL HISTORY OF THE UNITED STATES. [1834. 

of that country which would not afford a reasonable pro- 
tection to its own domestic industry, and thereby gave to 
foreigners a decided preference in its markets. Although 
that portion of Pennsylvania abounded with ore, with 
wood, and with water-power, yet its manufactories gener- 
ally had sunk into ruin, and existed only as standing 
monuments of the false policy of the government. The 
manufacturers and their laborers had both been thrown 
out of employment, and the neighboring farmer was with- 
out a market. 

Webster denied that there had been such general dis- 
tress among the manufacturing interests of the country. 
On the contrary, he believed there was no period in 
which the general prosperity had been better secured, or 
rested on a more solid foundation. In discussing the 
proposed duty on iron, he said the freight on iron had 
been offered, from Sweden to the United States, as low as 
eight dollars per ton. This was not more than the price 
of fifty miles of land-carriage. Stockholm, therefore, for 
the purpose of his argument, might be considered as 
within fifty miles of Philadelphia. Now, it was at once 
a just and a strong view of the case, to consider that 
there were, within fifty miles of our market, vast multi- 
tudes of persons who were willing to labor in the pro- 
duction of this article for us at the rate of seven cents 
per day, while we had no labor which would not com- 
mand, upon the average, at least five or six times that 
amount. The question, then, was, should we buy this 
article of those manufacturers, and suffer our own labor 
to earn its greater reward, or should we employ our own 
labor in a similar manufacture, and make up to it, by a 



1824.] TARIFF LEGISLATION. 379 

tax on consumers, the loss which it must necessarily sus- 
tain. 

In the Senate the bill encountered a determined resist- 
ance from the opponents of a strongly protective policy, 
and was materially modified in the direction of lower 
duties. 

This tariff was disappointing to some interests : in sev- 
eral ways, however, there was progress. Cotton-manufac- 
turers flourished, though dark days were mingled with 
the sunshine. For a long period after the law was en- 
acted, the business receded from the former high-water 
mark. Many large capitalists who had been engaged in 
foreign commerce, of which the profits had greatly dimin- 
ished, were led to embark in manufacturing. A supply 
was created beyond the demand, and prices fell; and 
many of the small establishments were compelled to sac- 
rifice their products. Not a few cases occurred in which 
cloth was sold for less than the raw cotton used in 
making it. One consequence of the increased duties, 
therefore, was the erection of too many mills, causing ex- 
cessive competition among the manufacturers, and end- 
ing in their financial embarrassment. In the mean time 
the consumer was getting his goods at a low figure. 

Indeed, the prices fell so low, compared with what they 
had been, 1 that cotton goods were exported to some ex- 
tent ; although those opposed to protection claimed that 
these exportations were simply to complete the assorted 
cargoes which must be taken in order to make voyages 
of that nature, which were chiefly to South America, 
successful. 2 Notwithstanding the fall in the price of the 

i Dem. Rev., vol. ii. p. 43. 2 Lee's Report, N. Y., 1828, pp. 25, 26. 



380 FINANCIAL HISTORY OF THE UNITED STATES. [1824. 

manufactured product, it was not in proportion to the 
decline in the price of cotton. It must be added, too, 
that the diminution of prices was due in part to great 
improvements in machinery. 

When Simon N. Dexter, a leading cotton-manufacturer, 
was examined before the committee of manufactures in 
1828, he was asked why he was enabled to sell coarse 
cottons so much lower than they were sold a few years 
before? was it owing, in any considerable degree, to the 
increase of capital, of skill, the perfection of machinery, 
and to the diminished price of cotton? to which he 
replied that it was owing to the improvement in ma- 
chinery, the reduced price of raw cotton, and to the 
increased skill of manufacture. 1 

When he was asked if the continuation of the mini- 
mum duty on coarse cotton goods was not the only se- 
curity on which the manufacturers relied for continuing 
their operations, he answered, "I cannot say that it is. 
I think the manufacture of coarse cottons in this coun- 
try is now so well established, that we could make them, 
if the present premium was reduced. I think, if the 
present premium was repealed, that the foreign cottons 
of this description would for a time come in, and would 
greatly injure, for a while, all our manufacturers ; but 
this would be done at a loss to the foreign manufacturer. 
Some of our manufacturers would be able eventually to 
sustain themselves, because they can afford the article 
now as cheap as it can be afforded from England. This 
reduction would, however, create a contest between the 
American capital invested in these manufactures, and the 

i Mallory's Report, No. 115, 20 Cong., first session. 



1824.] TAKIFF LEGISLATION. 381 

foreign, which would, in my opinion, ruin some of our 
establishments, and compel them all, for a time, to sustain 
themselves at a loss." The opinions of Dexter were con- 
firmed by other manufacturers. On the finer goods, it 
was thought that perhaps a slight addition to the duty 
was needed to compete successfully with foreign coun- 
tries , but otherwise they sought no further protection 
from the government. 1 

1 In a report on the production and manufacture of cotton, at the New- 
York Convention in 1831, it was affirmed that the kinds of goods which 
constituted the staple manufacture of this country were not made else- 
where; and the committee who made the report believed they never could 
he produced so advantageously as at home. The price of the coarse and 
heavy fabrics to which the attention of the manufacturers was in the first 
instance necessarily directed, fell, in the fourteen years from 1816 to 1830, 
two-thirds; while that of the raw material declined, notwithstanding the 
immense increase of production, only one-half. The result was entirely 
attributed to the increased skill of the manufacturers, and to competition 
among themselves. It might be affirmed, and rigidly proved, they said, 
that sheetings could at that moment be made at a less price in the United 
States than in any other country. Of what necessity, then, it might be 
asked, was the protecting duty of eight and three-quarters cents a square 
yard? The committee answer thus: "1st, That, if the position here ad- 
vanced be correct, the duty, so far as these goods are concerned, cannot 
operate as a tax, and that the effect of repealing it would be to excite a 
foreign competition, which, however ruinous to the importer, who would 
ultimately be driven from the market, would, in the mean while, produce 
great confusion and distress at home; 2d, That the cotton manufacture has. 
doubled itself within five years, extending gradually to the finer goods, 
which require more skill and less of the raw material, and which, conse- 
quently, are less protected by the existing system of a minimum duty. As 
competition increases, it may be expected that finer and more elaborate 
textures will be attempted. We affirm that the pledges of the manufac- 
turers have been fully redeemed by the existing low price of coarse goods, 
the only ones contemplated in the enactment of the tariff of 1816, and 
that the same result will follow in fine goods, if the protection now ex- 
tended to them shall be continued." — p. 10. 



382 FINANCIAL HISTOEY OF THE UNITED STATES. [1828. 

Another consequence of this law was, that influential 
men in New England invested in these enterprises, and 
they became upholders of the protective principle. Said 
Webster, in the Senate, in 1828, "Nothing was left to 
New England, after the Act of 1824, but to conform 
herself to the will of others. Nothing was left to her 
but to consider that the government had fixed and deter- 
mined its own policy, and that policy was protection." 

The paper-manufacturers at this time were in a very 
flourishing condition. A paper-manufacturer. was asked, 
" Are the prices of paper lower now than formerly, and, 
if so, is this owing to importations, or to domestic compe- 
tition ? " to which he answered, " The price of some 
kinds of paper are lower than formerly : other kinds bear 
about the same prices, or perhaps those of the best 
quality are a shade higher than they were eighteen 
months ago. I conceive the prices are regulated now 
wholly by domestic competition." 

Iron-manufacturers, too, regarded the future with 
greater hope. Most all kinds of iron were produced at 
some profit, although prices had fallen below the mark 
which existed a few years before. The duty on nails was 
declared to be "ample." One manufacturer said, that, 
during the late war, several very important establishments 
were erected, and for a time they flourished. In 1816, 
and for several subsequent years, their condition was 
reversed. Within the last two or three years, with two 
exceptions, they had revived. Some new works, also, had 
been erected. On hammered, bar, and sheet iron, a higher 
duty was deemed expedient, and also on rolled and slit 
nail and spike rods. There was a kind of hammered iron, 



1838.] TARIFF LEGISLATION. 383 

resembling spike-rods, imported from Russia, which inter- 
fered with the nail and spike rods, and affected their 
prices. The revenue laws were evaded by entering it as 
hammered iron. An increase on this article was deemed 
expedient, or provision made to prevent the evasion of the 
existing revenue laws by placing it on the footing of nail 
and spike rods. 

Another favorite object of protection by the govern- 
ment had been sail-duck. This at first was imported 
mostly from Russia, and was made either of flax or hemp. 
But after a time the experiment was tried in this country 
of making it from cotton, and with so much success as to 
endanger the market to the foreign manufacturer. It 
was soon found to be much better than either hemp or 
flax, and its production rapidly increased. Russian and 
English manufacturers sought to imitate it, and sell the 
imitation at a lower price ; but, in the end, the cotton was 
so superior, that it was very generally desired. 

The manufacture of glass was also in a sound way. 
Domestic competition had reduced the price, but no fur- 
ther duties were needed nor desired. 

The worst defect in the tariff law of 1824 related to 
wool and woollens. The object of the law was to encour- 
age the growth of wool, as well as the manufacture of it. 
It was clearly enough seen, that, if the manufacturer did 
not prosper, the wool-grower could not. But the duty on 
wool was too high in proportion to the duty on woollen 
goods ; and consequently the price and quantity of 
domestic wool fell off, because manufacturers would not 
engage in the business. 1 The prices of woollen goods had 

i 34 Niles, pp. 1-18. 33 Ibid., p. 434. 



384 FINANCIAL HISTORY OF THE UNITED STATES. [1828. 

fallen so low, that wool-growers despaired, and, in 1827 
and 1828, began to kill their sheep. Others continued to 
raise them, hoping for a favorable change in the law, 
whereby the industry would revive and become profitable. 
For two years, under the new tariff, wool-growing was 
profitable, but not after that period. The price declined ; 
and yet the manufacturer was not able to make and sell 
goods, except at a loss. 

The chief hinderances were domestic competition and 
increased importations. With the new tariff there was 'a 
considerable increase of factories, which, of course, inten- 
sified the heat of competition ; but the more potent cause 
was the importation of foreign woollens. These were 
pushed into our market, mainly because there was a sur- 
plus of stock which must be sold. 1 The condition of 
woollen manufactures in England was fearful. An over- 
seer in the large manufacturing village of Sadclleworth 
writes to his brother in America, "If you were in this 
country, you would scarcely hear the sound of a woollen- 
shuttle in all the neighborhood ; and, take all Saddleworth 
through, you will not find one shuttle out of forty going." 2 
It was indeed one of the greatest convulsions the mer- 

1 Nathan Hale, in his able review and criticism of the "American Sys- 
tem," Boston, 1829, said it would not be denied that one of the causes of 
the recent convulsion " was the overdoing of all branches of trade in Great 
Britain; and among its most disastrous effects were a sudden stagnation 
of demand for all objects of trade, and a consequent unprecedented fall of 
prices. Merchandise became a drug; and, as might be expected under 
these circumstances, the principal articles of British manufacture, woollen 
and cotton goods in particular, were thrown upon foreign markets, not at 
prices regulated by the cost of manufacture, but at prices dictated by the 
then desperate state of trade." — pp. 41, 42. 

2 For entire letter, see 33 Niles, p. 227. 



1838.] TAKIFF LEGISLATION. 385 

can tile world had ever known, and, since the date of 
the South Sea trouble, probably had not had a parallel. 
" The effect of the explosion," says Hale, " was the sudden 
depression of prices ; and this effect was seriously felt by 
the manufacturers of woollens, as well as by many other 
classes of men in trade in this country. Against such 
losses," he maintained, "the government can afford no 
relief: it would be in vain to prevent their recurrence. 
To undertake to indemnify one class who suffered loss 
from this source would be to do gross injustice to the 
whole community." * 

Dupont, a very prominent woollen-manufacturer of that 
day, told a committee of Congress that formerly the in> 
portations of woollen goods from England were made by 
our merchants in the regular course of trade. Now these 
importations were mostly made on British account, and a 
very large share of them for the following causes : first, 
their home market was overstocked, and they had rather 
sell the surplus at a loss than to keep it on hand ; and, 
secondly, the British manufacturer had on hand articles 
not suited to his home market, or which were of inferior 
quality, or which were made from secondary materials, 
and which he pressed off his hands because they would 
not sell at home, or because he would not hazard 
the reputation of his factory by putting them into 
those markets. Those goods, brought to our markets 
for these causes, and sold at the auctions for what they 
would command, regulated the price of our own wool- 
len goods. 

There were other causes prejudicial to the American 

1 American System, p. 41. 



386 FINANCIAL HISTORY OF THE UNITED STATES. [1828. 

manufacturer. 1 One was the change in the duty imposed 
by England on her wool. When the tariff law of 1824 
was enacted, the duty on wool imported into England 
was sixpence sterling per pound. That very year the 
duty was reduced to one penny. During the debate in 
the British Parliament, Mr. Robertson, a commercial mem- 
ber, " begged leave to call the attention of the House to 
the state of America," in order to show the expediency of 
taking off the duty on raw materials. Having shown the 
rapid growth in the population, " which might be expected 
to amount to sixty millions in forty years," he drew the 
inference that here was an immense mart for English low- 
priced cloths, of which England might avail itself, if the 
impolitic duties on the raw material were repealed. The 
next year, even this low duty was reduced one-half on all 
wool costing less than a shilling per pound. It was this 
action of the British Government which led Edward 
Everett to declare, in a public speech, that unless the 
American people thought it was just and fair that the 
laws passed by the American Congress for the protection 
of American industry should be repealed by the British 
Parliament, for the purpose of securing the supply of our 
market to the British manufacturer to the end of time, it 
was the duty of Congress to counteract this movement. 
It was incumbent on Congress, he continued, as the very 
least they could do, to raise the duty of 1824 fifty per 



1 A very striking picture of the difficulties surrounding the American 
woollen-manufacturer was drawn hy A. M. Schenk, for a long period one of 
the most prominent woollen-manufacturers in the country, in a letter pub- 
lished in the National Journal, Washington, March 24, 1828. See letter on 
Wool and Woollens, 34 Niles, p. 76. 



1812.] TAKIFF LEGISLATION. 387 

cent ; for so much had British legislation lowered it. Had 
this been done, he maintained, the foreign article would 
not have been enhanced to the consumer beyond its old 
price, because the addition to the duty would have been 
taken from the cost. 1 

The most powerful adverse influence, however, to 
American manufacturing, was the auction system. Pre- 
vious to the war of 1812 there were but two or three 
auction establishments in New- York City, and their busi- 
ness was inconsiderable. It was then considered a dis- 
creditable mode of selling goods, and various methods 
were practised for concealing the owner's name. Sales on 
account of underwriters, unsalable goods remaining in the 
hands of importers at the end of a season, and occasional 
visits of English agents with consignments from English 
manufacturers, were the chief sources whence auction 
goods were derived. 2 

During the war, when goods became scarce and dear, 
the auction system rapidly grew to large proportions. As 
goods could not be imported direct from Europe, they were 
obtained through neutral channels, or from Canada ; and 
several houses were often jointly interested in the same 
importation. For this reason quick sales were desirable ; 
and consequently package-sales at auction were intro- 
duced as the most expeditious, as well as the most prof- 
itable, mode of disposal. The owners were frequently 
astonished at the prices obtained at auctions, and doubt- 

1 Harrisburg Convention, p. 22. For history of woollen industry from 
war of 1812 to 1828, see Niles's Address at Harrisburg Convention, p. 18 
et seq. 

2 Remarks on the Auction System, p. 6. 



388 FINANCIAL HISTORY OF THE UNITED STATES. [1816. 

less buyers paid far more than they would if auction-sales 
had been prohibited. With the return of peace, large 
quantities were imported, when neither the city nor the 
country stores had any stock left: competition conse- 
quently, among purchasers, was great ; and goods sold at 
high prices. 

The auctioneer at this time usually cashed the sales : 
thus the importer was able to remit the money immedi- 
ately to Europe for more goods. The facility which auc- 
tions furnished for forcing goods into the market, beyond 
the actual wants of the people, contributed in a great 
degree to that wide-spread ruin which desolated our 
country in 1816. Merchants, finding that they could sell 
their goods at auction with such facility, and be ready for 
another venture so soon, ordered twice as many as they 
would have done, had they continued to sell all their goods 
in the old way. This extraordinary demand ceased late in 
the autumn of 1816, after the merchants had laid in their 
stocks. Though prices began to decline the following 
winter, yet the auctions were crowded from day to day, 
till many articles fell so low, that they paid little more 
than the duties. This prostrated almost every importer 
and jobber. Scarcely one of the former class escaped, 
and those of the latter class who weathered the storm 
were for a long time seriously crippled. 

During this time of distress no orders were sent to 
Europe for goods. They accumulated, therefore, until 
the manufacturers were obliged to seek a market for 
them. Agents were accordingly sent to the United 
States. Th ev found that the only mode of sale open to 
them was by auction, which afforded great facilities. The 



1818.] TARIFF LEGISLATION. 389 

auctioneers became their bondsmen for the duties at the 
custom-house, as the law required that the sureties should 
be American citizens. The auctioneers, also, by making 
immediate advances on these importations, enabled the 
manufacturers to consign more goods, almost in course of 
post. Auctioneers increased in number, wealth, and influ- 
ence. They were directors in nearly every bank in New 
York, and could thus obtain discounts to an indefinite 
amount, and control the market. The first flight of 
English agents originated in necessity, to enable them to 
sell their surplus stock, and was afterward continued for 
profit. In 1817 and 1818, when the depression mentioned 
had subsided, some articles became scarce. Agents were 
now more expert, and by constantly attending public 
sales, and becoming perfectly acquainted with the market, 
kept their friends advised of every change. So soon as 
any article sold at a profit, it was instantly ordered, and 
transmitted with great rapidity. 

The American importer continued to make attempts to 
import goods, but these were nearly always unsuccessful. 
How could it be otherwise, when the ship which brought 
goods that had been specially ordered also brought, from 
the same houses, other similar parcels that were sent to 
the auction-room almost before the importer had received 
his goods from the vessel ? The manufacturer took advan- 
tage of the information furnished by his American corre- 
spondent, and, after filling his order, also supplied his 
customers. 1 

1 Remarks upon the Auction System, p. 11. The author of Remarks 
upon the Auction System, which is replete with facts showing the injuri- 
ous effect of it to American importers, among his many illustrations of 






390 FINANCIAL HISTORY OF THE UNITED STATES. [1838. 

Between 1810 and 1828 the goods sold in this way in 
New York amounted to |225,000,000. 1 By the instru- 
ment of auctions the tariff barrier was weakened, and 
well-nigh destroyed. Manufacturers regarded the auc- 
tion system with grave apprehension. They sought to 
tax auction-sales in order to diminish their force and 
frequency. They were taxed by the State of New York ; 
but a national tax was ardently desired by many. Pam- 
phlets and speeches constantly appeared in condemnation 
of the system, while occasionally a defence was inter- 
posed. Opposition to the system raged with great fury 
for many years. 2 

Another mode of breaking down the tariff barrier was 
by entering goods at fictitious prices. How extensively 

the fact stated in the text, adds the following : "In 1825 the house in 
■which I am a partner imported, in conjunction with a friend, two thousand 
pieces of a certain description of goods. The patterns had heen sent by a 
previous conveyance, with an understanding that the goods would imme- 
diately follow, and, moreover, that the style was to he reserved for our 
sole use. The goods arrived; hut the same vessel brought nearly five 
thousand pieces of the same description of goods to a certain house in 
town, the greater part of cloths inferior to ours, and charged at five to 
eight shillings sterling per piece lower. These goods were sold at auction; 
and the result of the whole was simply this: we lost nearly two thousand 
dollars by our adventure, and our English friends gained the same, or a 
greater ratio, by theirs." The author adds, " Without the rapid mode of 
selling by auction, this fraud could not have been perpetrated." — p. 12. 

1 Remarks upon the Auction System, p. 52. 

2 The two ablest pamphlets against auctions were, perhaps, Remarks 
upon the Auction System as practised in New York, etc. (N. Y., 1828), 
and Reasons why the Present System of Auctions ought to be Abolished 
N. Y., 1828). The ablest production on the other side was an answer to 
the last-mentioned pamphlet, and was entitled An Examination of the 
Reasons why the Present System of Auctions ought to be Abolished, etc. 
(Bait., 1829). 



1827.] TARIFF LEGISLATION. 391 

this was done we have no precise evidence, but there 
are good reasons for supposing that it was done very 
frequently. "It was a common custom, and one well 
understood by merchants, that many foreign importers " 
residing here, and who sold their goods mostly by auction, 
were "in the constant habit of receiving two invoices of 
each parcel of goods." One of these was " made out at a 
very low rate," and was used to enter the goods : " the 
other contained the actual cost." Of course, the govern- 
ment was injured by losing the revenue justly due to it, 
while American manufacturers and importers suffered in 
the ways mentioned. 1 

Even when the foreign manufacturer entered his goods 
at their cost to him, the price was about sixteen per cent 
lower than the prices of similar goods entered by Ameri- 
can importers. 2 This difference was great enough to 
work serious injury to the American manufacturer and 
importer. 3 The foreign importers, too, by importing so 
heavily, fixed the general rule of valuation ; and the 
American invoice, though ten to fifteen per cent higher, 
•was an exception. By thus importing directly without 
adding intermediate profits, and fixing the cost of goods 
on the basis established by foreign manufacturers, the 

1 See Remarks for numerous illustrations. 

2 Proceed. Gen. Convention at Harrisburg, 1827, pp. 47-51. 

3 ' ' Not many years since, the dry-goods merchants were among the most 
numerous and important of the mercantile class. At this moment the great 
majority of them are no longer importing-merchants, but the agents of 
British manufacturing houses; and our most intelligent merchants calcu- 
late that at least two-thirds, both of our export and import trade with 
Great Britain, is in British hands, and on British account."— Observations 
on the Report of the Committee of Ways and Means, made at Wash., March 
12, 1828, p. 23. 



392 FINANCIAL HISTORY OF THE UNITED STATES. [1825. 

protection which our government sought to maintain 
through the tariff was overcome. 

It was maintained, too, that the graduated system was 
injurious. As the duties grew higher, the temptation to 
import increased, because there was a tendency to en- 
hance prices beyond covering the additional tax. 

Soon after enacting the law, a writer predicted, "Our 
woollen-manufacturers, after next month, will have only 
twelve and a half per cent in their favor. In June, 
1826, an additional five per cent will be levied on wool; 
and should the exchange be reduced, an event highly 
probable, our woollen manufacture must sink under the 
competition of European fabrics." 1 Subsequent events 
proved the truth of his prediction. Unlike many a 
prophet, he had built upon unquestioned facts. In the 
first place, wool constituted nearly one-half the value of 
the cloth produced; and the price of domestic wool was 
regulated by the price at which foreign wool could be 
imported and sold under the existing duties. The coun- 
try supplied about one half the quantity needed : the 
other half was imported. The price of domestic as well 
as foreign wool was fifty per cent dearer in the United 
States than in England. The duty thereon was thirty 
per cent ; on woollen cloth, thirty-three and a third per 
cent. The greater bulk of raw wool rendered the freight 
and charges on it nearly equal to the difference of duty 
between cloth and wool. The reader will see, therefore, 
as the value of the wool constituted one-half of the value 
of the cloth, and as the price of the raw material was 
fifty per cent dearer in the United States than in Eng- 

i New York Statesman. See Thirteen Essays, p. 21. 



1837.] TARIFF LEGISLATION. 393 

land, the woollen-manufacturers lost at once the benefit 
of one-half the duty on cloth. The duty on cloth, there- 
'fore, was virtually reduced from thirty-three and a third 
per cent to one-half that amount. 

Even the limited protection thus given was further 
reduced by the use, from necessity, of other foreign 
materials in the manufacture of cloth, which were sub- 
jected to heavy duties. Two of these articles, olive-oil 
and castile soap, were taxed fifty per cent. Using such 
costly materials, how could the domestic manufacturer 
expect to compete successfully with those who could buy 
them at far lower rates? Blind, indeed, was the govern- 
ment, in taxing raw materials, like castile soap, olive-oil, 
and other things not made at home, but needed in manu- 
facturing, if truly desirous of encouraging American 
manufacturers. Looking on the face of this legislation, 
the good will and enmity of the government toward the 
manufacturers were abftut equally mixed. It protected 
with one hand, and smote with the other. But, in the 
interest of truth, it ought to be said that such incongru- 
ous work was the product of ignorance, rather than jeal- 
ousy or ill will. 

Weighted so heavily on every side, in 1827 the manu- 
facturers concerted measures for their relief. At nearly 
every session of Congress since 1824, the need of alter- 
ing the tariff had been made known to Congress; but 
nothing was done. In the summer of 1827 a convention 
of the friends of protection met at Harrisburg to consider 
their situation. The object of the meeting was to con- 
centrate facts, and to agree to a tariff of duties which 
should be equal in its benefits and burdens, so far as 



394 FINANCIAL HISTOEY OF THE UNITED STATES. [1838. 

equality could be attained, in all parts of the Union. 
This body was composed, for the most part, of prominent 
manufacturers, and the leading advocates of protection. 
Politically, a large majority of the members were the 
friends of the administration, Mr. Adams, and were in 
favor of his re-election ; but there were others, also of 
high standing, who were openly and decidedly for Gen. 
Jackson. The great object of the convention was to 
reconcile, if possible, the conflicting interests of the 
friends of protection. This was by no means an easy 
task. Massachusetts wished to raise the duty on im- 
ported cotton and woollen cloths, but, at the same time, 
desired to obtain her hemp and her molasses where she 
could buy cheapest, whether the former was grown in 
Russia or Kentucky, or the other was purchased in the 
West Indies or Louisiana. On the other hand, it was 
quite immaterial to Louisiana, whether she purchased her 
cotton and woollen cloths at Waltham (in Massachusetts) 
or at Manchester (in England), provided she could obtain 
them as cheap at one place as the other. If the manufac- 
turer of woollen cloth were protected from foreign compe- 
tition, the wool-grower insisted that he, too, ought to be 
protected from the competition of the grower of coarse 
wool in Smyrna, and the producer of fine wool in Europe. 
The convention at Harrisburg, however, in a spirit of 
mutual compromise, agreed to a tariff of duties which was 
satisfactory to the several interests. 

Jackson, during the presidential canvass, wrote a 
Janus-faced letter, declaring that he was in favor of a 
"judicious tariff," which, in the North and West, was 
interpreted as meaning protection, but in the South was 



1838.] TAEIFF LEGISLATION. 395 

construed differently; for, said the politicians in that 
section, no tariff can be judicious unless it be for revenue 
only. Hammond, the biographer of Silas Wright, says 
that "the answer of Gen. Jackson was probably drawn by 
some wily politician; for it does not accord with the 
frankness of a soldier, nor especially with the honest and 
fearless independence of Andrew Jackson." x 

Jackson was elected. A majority of the House were 
opposed to protection ; and they elected a speaker, Mr. 
Stevenson of Virginia. He, however, selected for chair- 
man of the committee on manufactures Mr. Mallory of 
Vermont, who was a national Republican. He possessed 
considerable talents, great candor and industry, and had 
served in the preceding Congress as chairman of the same 
committee. But the majority of the committee were 
opposed to Mr. Mallory and to protection. Silas Wright 
was placed next on the committee, who had hitherto 
acted with the protectionists; but doubtless, in placing 
him there, Mr. Stevenson had learned of Wright's con- 
version through Van Buren, who knew the opinions of 
men immersed in politics better than any man of his day. 

Wright, and a majority of the committee, were not 
willing to adopt the tariff recommended by the Harris- 
burg convention, without further investigation. A reso- 
lution was therefore offered in the House, emanating from 
the same committee, to send for persons and papers. 
This resolution encountered strong opposition, chiefly 
from the protectionists, who declared that the chief ob- 
ject was to delay and prevent action during the session. 
On the other side, it was affirmed that the Harrisburg 

i Polit. Hist, of N. Y., vol. iii. p. 101. 



396 FINANCIAL HISTORY OF THE UNITED STATES. [1828. 

convention had probably presented only a part of the 
facts relating to the subject, and that a knowledge of 
all of them was necessary in order to act intelligently 
thereon. 

When the investigation had been completed, Mallory 
was in favor of reporting a bill embodying the views of 
the Harrisburg convention ; but Wright, and a majority 
of the committee, differed from him. Wright favored a 
reduction of the duty on woollen cloths, and an increase 
on wool. Mallory contended that such a change in the 
law would prevent the working of the woollen-factories 
without loss ; that, in the event of their suspension, the 
domestic market for wool would be destroyed ; that, on 
the contrary, the encouragement to manufacture woollens 
would increase the demand for wool, and, of course, in- 
crease its price in the market; and that therefore the 
scheme advocated by Wright would, in the end, be 
fatally injurious to the wool-grower himself. 1 Wright 
favored an increase of duty on hemp, flax, iron, and mo- 
lasses, and a repeal of the drawback on molasses, which 
had been allowed when it was distilled into spirits, and 

1 " It is an admitted fact, that our manufacturers consume of our native 
wool to the amount of about twelve million dollars annually, and that 
they have created such a demand for that article, that its price is now 
actually fifty to seventy-five per cent above the price of British wool. This 
amounts to from four to six million dollars, and places that portion of the 
supposed tax in the pockets of the farmer instead of the manufacturer ; for 
it will not be contended, that, if the home manufacture be relinquished, 
the price of wool will be sustained. In such an event, he must look abroad 
for a market. That market can only be found in England; and he must 
sell it as much lower than British wool as the cost of transport to that 
country." — Observations on the Rep. of the Com. of Ways and Means, Phil., 
1828, p. 24. 



1828.] TAEIFF LEGISLATION. 397 

in that form exported. The bill, while highly favorable 
to the South and West, was very strongly opposed to the 
interests of New England. Although Mallory reported 
the bill, he did not like it ; and its defence fell to Wright, 
whose hand in framing it was visible in every line. The 
wool-growers of New York formed a considerable part of 
his constituency; and, if he could get the tariff on wool 
raised, he was sure of satisfying them, even if he did 
slaughter New-England interests. His wool-growing con- 
stituency did not know enough to perceive that protection 
of their interests was useless, unless woollen-manufac- 
turers also were protected; for the policy adopted by 
Wright would have hastened the extinction of the wool- 
len industry. In that event, the wool-grower would have 
been entirely at the mercy of the foreign manufacturer 
for his wool-market, — a result which would inevitably 
have led to lower prices of the product ; and this effect, 
no tariff, however ingeniously constructed, could have 
prevented. 

The debate was very elaborate ; and more ability was 
evinced, and reasons and facts presented, than during 
any previous or subsequent discussion of this subject. 
We can only glance at the leading points, some of which 
are still worthy of study. In Mallory's speech was an 
answer to the objection that all duties on imports were 
taxes on consumers. This was true, he admitted, as 
to those articles which were exclusively procured from 
abroad: it was untrue as to such articles as were pro- 
duced by domestic industry, nearly or wholly sufficient to 
supply the demands. It was supposed that we produced 
cotton fabrics to the value of thirty millions. A great 



398 FINANCIAL HISTORY OF THE UNITED STATES. [1838. 

proportion were valued at sixteen cents and under, the 
square yard. The duties and charges would be about ten 
cents. Remove the protection, and, according to the rule 
that duties were a tax on the consumer, we should be 
furnished with the fabric at four cents the running yard. 
The absurdity was apparent. Take a fabric valued at 
nine cents the square yard : the duties and charges would 
be about the same as previously stated. According to the 
rule, this fabric could be afforded to the consumer for 
nothing. Take nails : the duty was five cents. The aver- 
age price might be seven cents in market. The consumer, 
by the rule laid down, should have them for two cents a 
pound. The duty on cheese was nine cents per pound. 
The average value in market was not over seven cents. 
If duties on the foreign articles were a tax on the con- 
sumer, he was, in equity and good conscience, entitled to 
two cents for every pound he ate. 1 

1 Richard Rush maintained, that, " where an article is extensively- 
manufactured in the country, no tariff has ever produced any perceptible 
effect upon the price of the article. . . . The power of production in the 
world is much greater than the capacity for consumption; and hence there 
is a constant tendency in the supply to exceed the demand. Hence the 
uniform tendency to a reduction in the price of all articles, especially 
those which the ingenuity and power of man can multiply indefinitely. 
This being one of the laws of nature, the permanent effect of a tariff of 
ever so great a per cent never can be to raise the price of an article of do- 
mestic production. The tendency of a tariff is to keep the market at its 
present price by excluding a portion of the foreign article until the domes- 
tic supply comes up to the demand, which can never be at a very distant 
period (unless there is some natural impediment to the production in that 
particular country); and, when this comes to be the case, then prices com- 
mence again to fall. The different tariffs passed by Congress have never 
afforded any encouragement to domestic manufactures by raising the 
price of the domestic article above what it was at the time the tariff was 



1828.] TAKIFF LEGISLATION. 399 

J. S. Stevenson of Pennsylvania, who was a member of 
the same committee, supported the bill ; and several points 
in his speech may be profitably considered. One of these 
related to the time when it was proposed the bill should 
take effect. The committee fixed the 30th of the follow- 
ing June, not merely because this time had frequently 
been adopted, but because it was believed, that, if any bill 
were passed that session, the time between its passage and 
that for its going into operation would not be sufficient 
for notice of the fact to be transmitted to Europe, and for 
extensive importations to be made, ruinous to the manu- 
facturing interests. 

The committee were convinced that the most destruc- 
tive principle of the tariff of May 23, 1824, was that it im- 
posed only part of the duty on woollens on the 30th of 
June, 1824, and held out an extraordinary premium to 
importation from that time to the 30th of June, 1825, 
when a further duty of three and a third per cent was to 
be levied. The consequence was, that, instead of the usual 
average supply of eight and a half millions, there were 
upward of twelve millions of woollens imported in 1825 ; 
and this produced, mainly, the great depression of 1826, 
and the destruction of some factories, and losses to others. 

Referring to the modified duty proposed on steel, Mr. 
Stevenson declared, that, during the late war, it was impos- 

passed. These tariffs have protected domestic manufactures by excluding 
a portion of the foreign article, and thereby enabling the domestic manu- 
facturer to sell his products at present prices, instead of selling them at 
reduced prices. The effect of a tariff is to prevent prices from falling so 
fast as they would fall but for the tariff. No tariff for protection ever 
has been, or probably ever will be, high enough to enhance the prices of 
the domestic product." — The American System, Bait., 1828, pp. 23, 24. 



400 FINANCIAL HISTOEY OF THE UNITED STATES. [1838. 

sible to procure what was essential for the defence of the 
nation in forming arms ; and it rose in price from fifteen 
to seventy-five cents per pound. It was the special policy 
of England, who engrossed the principal manufacture, to 
prevent its introduction into this country, even by smug- 
gling. 

The increase of duty on molasses created strong opposi- 
tion. Mr. Hunt said it was a fact well understood, that 
the sugar-plantations of Louisiana afforded a greater 
amount of profit than any other branch of agricultural 
employment in this country. Since the year 1824, it was 
estimated that the production of sugar and molasses in 
Louisiana had been doubled ; and the produce of the last 
year had swelled to the prodigious amount of eighty thou- 
sand hogsheads of sugar, and five million gallons of mo- 
lasses. This business, therefore, required no additional 
aid or stimulus from the government. It did not, like 
many other kinds of employment, present the melancholy 
spectacle of languishment, ruin, and decay, for want of 
protection. The duty upon this article was manifestly 
unequal in its operation upon the different sections of 
the Union. The principal part of the foreign molasses 
was consumed in New England and New York, and a few 
of the States bordering on the Atlantic ; while, in the 
West, its consumption was small. The tax was not only 
principally paid by the Eastern States, but what rendered 
its operation still more severe and unequal was, that in 
those States the poorer part of the population paid the 
greater portion of the tax, as they consumed, in pro- 
portion to their numbers, larger quantities than the rich. 

There was another interest of long standing — that of 



1828.] TARIFF LEGISLATION". 401 

distilling molasses — which would necessarily be ruined 
by doubling the duties, and repealing the drawback which 
was now allowed upon the exportation of the spirits thus 
distilled. Our commerce, consequently, would be cur- 
tailed; and those on whom the losses and ruin would fall, 
by the interruption of this commerce, were not the large 
capitalists, but laborers, mechanics, and men of moderate 
fortunes, who had embarked in the various branches of 
business connected with this trade. 

Mr. Claiborne of Virginia opposed the bill, especially 
the amendment offered by Mr. Mallory, which was sub- 
stantially the bill desired by the Harrisburg convention. 
There had been four revisals, — in 1789, 1816, 1820, and 
1824. These had been invariably effected by compromise. 
To break into the system so frequently, and extend the 
duties, produced jealousy, dissatisfaction, and strife. It 
kept the price of labor and property constantly fluctuat- 
ing ; it unhinged the confidence of the people in the 
laws; and it disordered the circulating medium of the 
country. The incessant advance in duties enticed people 
to embark in manufacturing establishments with an im- 
pression that the government would sustain them, at all 
events, and make their labor productive. The course pur- 
sued by Congress in 1824 had led to this renewed effort to 
increase the duties. It was impolitic, at all times, for the 
government to interfere with the industry, labor, and 
enterprise of the citizen. If citizens were seduced, by 
premiums, into particular pursuits, could those premiums 
be withdrawn without a breach of faith ? He held it to 
be good policy to let labor, commerce, and enterprises 
alone. To the system of exclusion he could never agree. 



402 FINANCIAL HISTORY OF THE UNITED STATES. [1828. 

McDuffie of South Carolina, one of the ablest and 
most eloquent members of the House, opposed the bill. 
" There is no part of this whole scheme of delusion," he 
said, " which so strikingly illustrates its true genius, and 
so clearly demonstrates its injustice, as this combination 
of double duties, — first taxing the raw material, and then 
taxing the manufacture in a twofold degree, upon the 
ground that you have taxed the raw material. Upon 
what ' human principle ' do you lay a tax upon raw wool ? 
Are not all the other classes of the community called 
upon to sustain an immense weight of indirect taxation 
in order to build up our woollen manufactories, for the 
professed purpose of providing a domestic market for 
raw wool ? and are we to be told that the wool-growers, 
who are to derive the whole incidental benefit of this 
system, will not consent to the duty on woollen manufac- 
tures laid for their benefit, unless you bribe them to it by 
a direct bounty on raw wool ? Was there ever exhibited 
in human legislation a grosser inconsistency ? And, like 
all the other impostures by which the cunning and artful 
few have made the credulous many subservient to their 
selfish purposes, this system has called ^nto its service 
certain pretended magical powers, by which its worship- 
pers are taught to anticipate golden visions of prosper- 
ity and wealth for themselves and their country. No 
enlightened and commercial nation ever prospered by 
attempting to control the course of industry by legisla- 
tive bounties or restrictions." 

When the vote in the House was taken, there were a 
hundred and five in favor of the bill reported, and ninety- 
four against it. Every member south of the Potomac 



1828.] TAEIFF LEGISLATION. 403 

voted for the original bill in preference to Mallory's 
amendment. What led them to act so unanimously in op- 
posing it ? Hammond, 1 Wright's biographer, says, " The 
bill, though the duties were so high on some articles as 
would, it was believed, wholly exclude their importation 
from abroad, bore with relentless and almost ruinous 
severity on New England. The high duty on coarse 
Smyrna wool, which was used in the manufacturing of 
negro cloths, would, it was apprehended, exclude its im- 
portation, and deprive the woollen-factories of that lucra- 
tive branch of their business; the price of hemp, iron, 
and cordage, it was feared, would be so enhanced as to 
greatly check the business of ship-building ; and the duty 
on molasses — an article for the consumption of which 
the Yankee nation have long been celebrated, great quan- 
tities of which were by the Eastern people distilled into a 
species of spirit called New-England rum, and exported — 
was regarded, and perhaps justly so, as peculiarly oppress- 
ive to the eastern section of the Union. The South 
wished to defeat any bill for protection, and were deter- 
mined in a body to vote against the final passage of any 
bill which favored the protective policy. If, therefore, 
the bill reported by the committee on manufactures could 
be made so unpalatable to the members from New Eng- 
land as to induce them to vote against it, their vote, 
together with the united Southern vote, would cause its 
rejection." 

In the Senate, Benton advocated the continuance of 
the duty on molasses as an indirect encouragement to the 
farming interest. It would enable the distillers of the 

i Polit. Hist, of N. Y., vol. iii. p. 109. 



404 FINANCIAL HISTORY OF THE UNITED STATES. [1828. 

Western country to compete with those in the Eastern 
States, who distilled from molasses. This feature of the 
bill gained the support of the senators from Kentucky, 
but encountered the opposition of Senator Parris of 
Maine, who declared the effect of the bill would be to 
diminish materially the importation of molasses : indeed, 
the avowed object of the bill, he declared, was to dimin- 
ish it for the purpose of making way for the molasses 
of the Southern, and the whiskey of the Middle and 
Western States. Such a result would destroy the West- 
India trade of New England. 

Mr. Hayne of South Carolina declared that in this 
business, from beginning to end, the interests of the 
South had been shamefully sacrificed. The system of 
protective duties had created discordant feelings, strife, 
jealousy, and heart-burnings, which never ought to exist 
between the two different sections of the same country. 

It was during this debate that Webster first became an 
advocate for protection. " The present measure," he said, 
" is pronounced to be exclusively for the benefit of New 
England, to be brought forward by her agency, and de- 
signed to gratify the cupidity of her wealthy establish- 
ments. . . . The opinion of New England up to 1824 was 
founded in the conviction, that, on the whole, it was wisest 
and best, both for herself and others, that manufactures 
should make haste slowly. She felt reluctance to trust 
great interests on the foundation of government patron- 
age. But the Act of 1824 settled the policy of the coun- 
try. What, then, was New England to do ? . Was she to 
deny herself the use of her advantages, natural and 
acquired? Was she longer to resist what she could no 



1828.] TARIFF LEGISLATION. 405 

longer prevent, or, seeing the policy of the government 
thus settled and fixed, to accommodate to it, as well as 
she could, her own pursuits and her own industry ? " 

Foot, of Connecticut, sought to amend the bill by taking 
off the duty from hemp, cotton bagging, molasses, and for- 
eign distilled spirits. This amendment provoked sharp 
criticism, especially from Johnson of Kentucky, who 
inquired, if these articles were exempted from duty, 
what remaining interest had the West in this long-ex- 
expected tariff? 

Benton proposed to amend the bill by imposing a 
duty of twenty-five cents a pound on indigo. He 
declared that his object in doing this was two-fold, — 
first, to place the American system beyond the reach 
of its enemies by procuring a home supply of an article 
indispensable to its existence; and, next, to benefit the 
South by resuming the cultivation of one of its ancient 
and valuable staples. Another object in offering his 
amendment was to secure the support of the South- 
Carolina senators; and he succeeded in getting the 
vote of one of them. 

The duty on sugar and molasses was long and ably 
debated ; and, among other speeches, Benton made one 
replete with facts and inductions. He brought the fact 
to the surface, that, when the first tariff was enacted in 
1790, brown sugar was rated at one cent per pound, and 
a gallon of molasses at eight cents, on the theory that 
a gallon of molasses was admitted to be equal in weight, 
and superior in saccharine, to eight pounds of sugar. The 
important fact, which was admitted, that four-fifths of the 
molasses imported into New England was consumed as 



406 FINANCIAL HISTOEY OF THE UNITED STATES. [1838. 

sugar, suggested grave questions to the American states- 
man concerning our revenue, the equal distribution of 
our taxes, and the preservation of a market for our 
domestic sugar and molasses. 

Woodbury moved to amend the bill by inserting " on 
all manufactures of silks from countries this side the Cape 
of Good Hope twenty per cent ad valorem" The silks of 
India were paid for mostly in specie, and were brought 
in a few ships; while those from Europe were chiefly 
obtained in exchange for cotton, tobacco, and other sta- 
ple articles of agriculture, and gave occupation directly 
to a much larger amount of tonnage. Moreover, the 
proposed tax was laid on a luxury, and the change was 
in exact conformity with the recommendation of the com- 
mittee on manufactures in 1824 ; and the experience of 
three years had shown the benefits of the discrimination. 

Many amendments were offered to the bill during the 
discussion ; but it finally passed the Senate by a vote of 
26 to 21, Hayne voting against it. The House finally 
concurred in the Senate amendments; and thus the bill 
became a law, — a bill which many have been pleased to 
call " a bill of abominations." 1 At the next session an 
unsuccessful attempt was made to repeal it. Wright was 
among the foremost in opposing its repeal. 

This law marked top-high water in the history of Amer- 
ican tariff legislation. The Act of 1816 did not protect 
enough ; nor did the Act of 1824. The experiment of pro- 
tecting was now to be carried to the highest point it 
ever reached. 

Many opposed an increase of the duties, believing that 

1 May 19, 1828, 20 Cong., first session, chap. 55. 



1828.] TARIFF LEGISLATION. 407 

prices would be raised, and, consequently, that a heavier 
burden would be borne by the consumer. But importers 
were doomed to a very serious disappointment. Instead 
of getting more for their goods, they were obliged to sell 
them at a lower figure than before ; and their losses, espe- 
cially on those which were received after the Act went 
into operation, were very heavy, — so great, indeed, that 
they petitioned to Congress for relief. They desired to 
have the additional duties refunded on all goods received 
after the enactment of the law, which had been ordered 
previously to that event. A large number of the Boston 
firms declared in their petition to Congress, "Upon the 
passage of the Act, many persons supposed that those 
manufactures on which the duty was increased would 
immediately rise in the market, and command prices pro- 
portionate to the increase of duty ; and, at the first view 
of the subject, such, perhaps, would appear as the natural 
result. Such, however, was not the effect of the tariff 
of May, 1828; for, instead of advancing, most if not 
all of the principal articles of cotton, worsted, and 
woollen goods, on which the duty was increased, rather 
declined than improved in price after the passage of 
the tariff Act of May, 1828, and would not, in many 
cases, bring so much in market as they had done 
the year previous under the old duty." 1 Samuel D. 
Bradford, a very extensive importer, said, "Nothing 
can be more certain than that the extra duty laid in 
1828 came, nearly all of it, out of the pockets of the 
importers. 

"Some cases may have arisen where some kinds of goods 

1 Ex. Doc. No. 13, 22 Cong., second session. 



408 FINANCIAL HISTORY OF THE UNITED STATES. [1828. 

sold, after the tariff was passed, higher than before ; and 
certainly, if this had not been the case, many importers 
would have lost half their capitals. But the advance was 
on articles on which the extra duty amounted to an in- 
crease of forty and a hundred per cent; and it may be 
truly and safely asserted, that, in all such cases, the ad- 
vance realized was only a fractional part of the extra duty 
imposed. The doctrine of Mies was," Bradford confessed, 
" for once verified, that laying a high duty often lowers 
the price of an article, and reducing the duty increases 
its value." 1 

What was the cause of this decline? Bradford said, 
" We are very sorry to find that any gentleman should 
have come to the conclusion that the decline in prices of 
goods in 1828 arose in consequence of overstocked mar- 
kets, and that the cause of this overstock was an expec- 
tation, on the part of the merchants, that the duties 
would be increased, and that increased orders were sent 
abroad for goods in consequence of this expectation. 
The very reverse of this is the fact. The imports in the 
summer of 1828, and in the autumn of that year, were 
not large by any means, nor upon an increased scale ; 
and it is a well-known fact, that very few persons believed 
that the tariff Act of 1828 would pass, until they read 
its passage in the public prints of the day ; and we are 
confident, that, if any person believed it would pass at all, 
there was not a merchant in this country who ever con- 
ceived for a moment that it would commence its action 

1 We have given these somewhat lengthy extracts from Bradford, he- 
cause, as he was a prominent free-trader, the reader will not imagine that 
his views were colored with protective ideas. 



1829.] TARIFF LEGISLATION. 409 

at once. All supposed that four to twelve months would 
be allowed for the merchants to prepare for so great or 
sudden a change, as had been done upon all previous 
occasions." No Boston importer was able to trace the 
cause of the decline in prices in 1828. They were 
sure, however, that it was not caused by an increased 
importation, founded on the expectation of a higher 
tariff. 

They failed to obtain the relief sought, but they 
persevered. Even as late as the second session of the 
twenty-fifth Congress they renewed their efforts, but 
the committee of the House reported unfavorably: nor 
did they ever succeed in their object. 1 There was, in 
truth, no good reason for refunding the duties. 

1 House Report No. 1013, 25 Cong., second session. Even in 1843 several 
importers sought to have the duties refunded on goods imported after the 
law of 1828 went into effect, but which were ordered previously to its en- 
actment. They claimed that they did not have time to countermand the 
order after the law was passed, and thus prevent their arrival before its 
operation began. 

The committee found that various cases of a similar character, amount- 
ing nearly to four hundred thousand dollars, had been presented to Con- 
gress between the years 1833 and 1836; and they appended a report of the 
Committee of Ways and Means on the subject, made in 1838. In this the 
committee say they " can see no just ground for relief. If the increase of 
duty did not produce a corresponding increase in the price of the goods in 
our market, according to the accustomed laws of trade, it must have been 
owing to extraordinary causes, and was the misfortune of the importers, 
and by no means the fault of the government. Other causes might have 
produced commercial prosperity in the country, which would have enabled 
these importers to sell their goods at an advance far above the increased 
duty; and the importations, instead of being a losing, would have been 
a very profitable speculation. It is a risk which merchants, in common 
with all others, must run ; and it would be of evil tendency to make the 
government a guaranty for the loss upon such enterprises." The entire 
report is worthy of perusal. 



410 FINANCIAL HISTORY OF THE UNITED STATES. [1830. 

Prices at this time fell, because production was very 
much enlarged, and the volume of money was contract- 
ing. The contraction was caused by the outflow of specie 
to pay for imports. 1 

The national debt was paid so rapidly, that a reduction 
of the tariff became necessary ; and to that end, in May, 
1830, Mr. Clay submitted the following resolution : " That 
the existing duties upon articles imported from foreign 
countries, and not coming in competition with similar arti- 
cles made or produced within the United States, ought to 
be forthwith abolished, except the duties upon wines and 
silks, and that those ought to be reduced ; and that the 

1 Nicholas Biddle wrote in April, 1828, concerning the scarcity of 
money: "1. There was a constant tendency in banks to lend too much 
money, and to put too many notes in circulation. 2. The increase of 
the mixed mass of money generally raises the price of all commodities. 
3. When, therefore, you buy of foreigners more than they buy of you, as 
they cannot take the paper part of the currency, they must take the coin 
part. 4. The law of a mixed currency of coin and paper is, that when, 
from superabundance of the mixed mass, too much of the coin leaves the 
country, the remainder must be preserved by diminishing the paper. 5. 
We therefore get back our coin by diminishing our paper; and it will stay 
until drawn away by another superabundance of paper. 6. • Such is the 
fact, and such is the circle a mixed currency is always describing." — Na- 
tional Gazette, Phil., April 10. 

Ingham, in his annual report as secretary of the treasury, at the close of 
1829, made some very thoughtful remarks on this subject: "A total revo- 
lution is taking place in many of the productive employments through- 
out the civilized world. The improvements in science and arts, no longer 
interrupted by war, have been directed to other objects, and have so in- 
creased the power of production, that the tide of prices, which had been 
long on the flood, is gradually ebbing, even under a depreciated currency. 
The relative values between labor and products have also changed, but are 
not yet adjusted. The depression of prices, falling unequally on the dif- 
ferent species of property, is ruinous to many, and repugnant to the feel- 
ings even of those who do not really suffer. It may be long before a 



1830.] TARIFF LEGISLATION. 411 

committee on finance be instructed to report a bill accord- 
ingly." Hayne moved an amendment by striking out all 
after the word " countries," and inserting these words : 
"be so reduced, that the amount of the public revenue 
shall be sufficient to defray the expenses of government 
according to their present scale, after the payment of the 
public debt ; and that, allowing a reasonable time for the 
gradual reduction of the present high duties on the arti- 
cles coming into competition with similar articles made or 
produced within the United States, the duties be ulti- 
mately equalized, so that the duty on no article shall, as 
compared with the value of that article, vary materially 
from the general average." 

Clay's resolution was warmly debated. His own speech 
was the ablest and most finished of all the speeches that 
he ever delivered on this question, which had no other 
more ardent and unflinching champion. 

The resolution passed the Senate; and afterward the 
committee on manufactures reported a bill in conformity 
with it, which was laid on the table. Then the matter 

proper adjustment of these values removes the evil; and until then the 
busy world will be agitated by the convulsive struggles of its various in- 
terests, each to avert from itself, and throw upon others, the impending 
adversity. The ramifications of these connecting and conflicting opera- 
tions are so complicated, that it may be doubted whether any degree of 
intelligence, however free from the influence of special interests, could, by 
the exercise of a political power, materially lessen the evil. The active 
energies of man, stimulated by necessity, emulation, and love of wealth, 
are perhaps the agents most to be relied upon in maintaining a salutary 
equilibrium in the various operations of human enterprise. Every new 
disposition, therefore, of the money power, to be safe, should be gradual, 
and requires great caution to avoid increasing the unequal and irregular 
action which is so obviously prejudicial both to individual and public 
welfare.' ' 



412 FINANCIAL HISTORY OF THE UNITED STATES. [1830. 

slept until January, 1832, save that in 1830 the duties on 
tea, coffee, salt, and molasses, were reduced. 1 

1 This Act was to go into operation at the beginning of 1832. Near the 
close of the previous year (1831) a large nnmber of tea importers pre- 
sented memorials to Congress, praying, that, if the duty on tea was re- 
duced, the law should go into effect as soon as passed. They wrote to 
the secretary of the treasury about the matter, and he replied that he did 
not deem it wise to reduce the duties on tea. But he added, further, " It 
is believed, moreover, that the principal benefits of the proposed reduc- 
tion would be conferred on the importer rather than the consumer. If, as 
is understood to be the fact, there is a small quantity of tea in the hands 
of the retail dealers, it might not follow that the prices either of that now 
in bond, or of that ordered for importation, would fall in proportion to 
the reduction; whereas the importer can suffer neither loss nor incon- 
venience from the operation of a law with a view to which his business 
has been regulated for more than a year past." — Sen. Doc. No. 4, 22 Cong., 
first session. 



1832.] TARIFF LEGISLATION. 413 



CHAPTER V. 

TARIFF LEGISLATION. 
1832-1842. 

When Clay introduced his resolution for the modifica- 
tion of the tariff, on the 9th of January, 1832, it was 
referred to the committee on manufactures. Dickerson of 
New Jersey was chairman. His report 1 was very brief, 
but is well worthy of consideration. The second inquiry 
proposed by the committee was, how far might duties be 
abolished or reduced, so that only enough revenue should 
accrue to defray the ordinary expenditures of the govern- 
ment after the payment of the national debt, and yet 
be so equalized as to render them efficient for the pur- 
poses of their imposition. These purposes were to raise 
a sufficient revenue for all the exigencies of the govern- 
ment, and to give an adequate protection to those manu- 
factures which it was intended incidentally to protect 
by the imposition of the duties recommended. The com- 
mittee maintained that the duties imposed on imports 
might be so reduced or abolished, that the revenue would 
not be more than adequate to the exigencies of the gov- 
ernment, after the extinction of the public debt, that 
this reduction might take place largely by the total aboli- 

i Sen. Doc. No. 116, 22 Cong., first session. 



414 FINANCIAL HISTORY OF THE UNITED STATES. [1833. 

tion of duties on many articles, and their repeal in part 
on many others, not produced or manufactured in this 
country, or which did not require the protection of our 
laws, and also by reducing the duties on protected arti- 
cles by such modifications and arrangements as should 
secure to them a support equivalent to that which the laws 
then afforded them. They believed that no ultimate equal- 
ization of duties could be adopted, without the most 
serious injury to the country, which should leave our 
manufacturers without adequate protection. They then 
made an estimate of reductions, — chiefly on coffee and 
tea, but including spices, fruits, indigo, gums, dye-stuffs, 
etc., — amounting to 15,660,000. 

The secretary of the treasury had previously expressed 
his views on the subject, and so had the President, in 
favor of lowering and equalizing the duties. In the 
House two reports were made, — one by the Committee of 
Ways and Means, of which McDuffie was chairman, to- 
gether with an adverse report ; * and another by the com- 
mittee on manufactures. 2 

The former report was elaborate, and favored a reduc- 
tion of duties. McDuffie had long been zealously inclined 
toward a scheme of duties levied purely for revenue, and 
he had never failed to urge his views on every fit occasion. 
No one questioned either his sincerity or ability; but 
his logic was sometimes faulty, and led him to unsound 
conclusions. 

It was conceded by every one that a reduction of the 
revenue was needful : the only question was, How should 

i No. 279, containing also adverse report, 22 Cong., first session. 
2 No. 481. 



1833.] TARIFF LEGISLATION. 415 

the reduction be effected ? We have already shown what 
was Clay's idea concerning the way of making it, with 
whom, essentially, all who were in favor of protection 
agreed. The views of the other party were expressed in 
McDuffie's report, and formed the groundwork of the bill 
reported, which imposed a duty of twelve and a half per 
cent ad valorem on all foreign merchandise, with the ex- 
ception of such articles as were already admitted free 
of duty, or at a duty of less than twelve and a half per 
cent. The bill provided, however, for a gradual reduction 
of the duties on such imports as came in competition with 
domestic manufactures. 

The committee declared, that, in adopting a general 
system of ad valorem duties, they had been governed 
principally by two considerations. The first was, that 
it levied the same tax on articles of inferior quality, con- 
sumed by the poorer classes, as it levied on similar articles 
of the very best quality and highest price, consumed 
almost exclusively by the more wealthy classes. While 
the poor man, for example, who consumed low-priced 
French wines, was made to pay fifty or a hundred per 
cent on their value, the wealthy man paid only twenty- 
five or fifty per cent on the value of the high-priced 
wines, which gratified his taste for luxurious indulgence. 
The same remark was applicable to tea, coffee, sugar, and, 
indeed, to almost every article then subject to a specific 
duty. The other ground of preference for ad valorem over 
specific duties was the perpetual fluctuation in the price 
of articles of the same denomination and quality. A fall 
in the price of an article increased the rate of taxation 
contrary to the intention of the Legislature. There was, 



416 FINANCIAL HISTORY OP THE UNITED STATES. [1833. 

therefore, silent legislation by the revolutions of trade 
changing so entirely the enactments of Congress, that 
a duty had swelled to one hundred per cent, which was 
only twenty-five per cent when originally imposed. These 
were strong objections to the existing system. 

The committee then considered very elaborately why 
taxes should be levied equally, and advanced the further 
proposition, that, " whether the duty be laid upon the ex- 
port or the import, it is equally laid, in both cases, upon 
the production of the planter. There cannot be a more 
palpable and delusive error than the vulgar notion that 
imported manufactures, which have been purchased by 
the agricultural staples of this country, are foreign pro- 
ductions." The document throughout was a piece of 
reasoning evidently woven by McDuffie, and displaying 
his views with perfect clearness. 

The minority report was signed by two members of the 
committee ; and, if their reasoning was not so brilliant as 
that contained in the report of the majority, facts were 
more abundantly given. Among other propositions an- 
swered was the one relating to specific duties; namely, 
that a fall in the price of an article increased the rate of 
taxation, and therefore what was a reasonable duty, when 
first imposed, became oppressive as the value of the article 
diminished. The soundness of this objection, said the com- 
mittee, might be shown by a few familiar examples. Cut- 
nails were formerly from ten to twelve ceuts the pound : 
there was a specific duty on them of five cents ; and, under 
this duty, competition had brought down the price to six 
cents per pound, which was but little more than half what 
they formerly cost. According to the objection, this duty 



1833.] TARIFF LEGISLATION. 417 

might, have been a reasonable one when first imposed, 
but was an odious tax, when, under its protection, we 
could get nails for nearly one-half the former price. Sup- 
posing the duty were a " tax " in the sense generally used, 
we ought to get them for one cent a pound if the tax 
were taken off : but it would be difficult to believe this ; 
because under a lower rate of duty, and when our princi- 
pal supply was from foreign workshops, we were obliged 
to pay ten and twelve cents for what our own workmen 
now turned out for six cents. Lead formerly cost from 
six to eight cents a pound: the duty was three cents, 
specific ; and the present price was far below the former. 
Common window-glass formerly cost from ten to fourteen 
dollars a box : it was subject to a specific duty of three 
dollars and a half per hundred feet, and now sold at from 
four dollars to four dollars and a half per box. Brown 
sugar formerly cost fourteen dollars per hundredweight : 
it was subject to a specific duty of three cents per pound ; 
and the present price was about seven dollars or seven 
dollars and a half per hundredweight, — about one-half the 
former price. The duties on certain kinds of iron were 
specific. Twelve years ago bar-iron sold at Pittsburg for 
a hundred and ninety to two hundred dollars a ton : under 
the protection of a specific duty, the price had fallen to a 
hundred dollars per ton. Hoop-iron formerly was two 
hundred and fifty dollars, and was now a hundred and 
twenty dollars. Sheet-iron was sold for eighteen dollars 
a hundredweight, and was now eight dollars and a half. 
Cotton bagging was subject to a specific duty : the price 
formerly was twenty-six cents, and had now fallen to 
sixteen cents per yard. The minimum duty on coarse 



418 FINANCIAL HISTORY OF THE UNITED STATES. [1833. 

cotton goods was, in effect, a specific duty of eight cents 
and three-quarters a square yard : the price formerly was 
twenty and twenty-five cents. The like goods, or, rather, 
goods of much better quality, were now furnished for 
about eight cents a yard. If, therefore, the protecting 
duty of eight cents and three-quarters were a tax, to 
that extent the fabric ought to be obtained for less 
than nothing, if the tax were repealed. In truth, the 
people were not taxed, so the committee maintained, 
in these cases, unless it was by having their supplies 
furnished by American workmen, — in many instances, 
at one-half the price that was formerly paid for simi- 
lar articles when our market was controlled by for- 
eigners. 

But even if the same duty were levied on all things, the 
minority contended, the burden of taxation would not be 
equally distributed. Insurance, transportation, and other 
charges connected with the moving of goods, were also a 
tax ; and this was heaviest on those articles of merchandise 
containing the greatest weight and bulk. Therefore it 
would follow that the cheapest articles would receive the 
most protection ; and the dearest articles, on which the 
heaviest duties ought to be levied, would pay the least. 
A hogshead of molasses would bear a heavy duty ; and a 
piece of silk costing the same would bear a much lighter 
burden. 

Both reports discussed the subject very thoroughly, 
while, in the third report, emanating from the committee 
on manufactures, of which John Qumcy Adams was chair- 
man, the subject was treated historically ; and the views 
of the secretary of the treasury, and the bill which he had 



1833.] TARIFF LEGISLATION. 419 

prepared, embodying them in legal form, were fully con- 
sidered. 1 

McDufne, when reporting his bill to the House, de- 
clared, among other things, that " the people of the South 
were firmly impressed with the belief, that, under any sys- 
tem of duties by which the revenue was derived almost 
exclusively from imports, their proportion of the burdens 
imposed by Federal taxation would be much greater than 
it ought to be, according to the principles of the constitu- 
tion which regulate the apportionment of direct taxes. 
Under these circumstances they thought they had a right 
to insist that the aggregate burden of taxation should 
bear as light as possible, and that not a dollar should be 
expended by the government that could be avoided by a 
rigid economy. If there were no such products in the 
United States as cotton, tobacco, and rice, would not the 
protective system be downright nonsense, — a mere impo- 
tent monument of human folly ? How could the people 
of the United States obtain foreign manufactures when 
they had nothing wherewith to pay for them ? And what 
could be more absurd and stupid than to prohibit the im- 
portation of articles which could not possibly be imported, 
even if there were no prohibition ? 

"It was against domestic, and not foreign, industry, 
that the manufacturers called for protection. But why 
did they need this very high and extravagant protection ? 
It was because foreign manufacturers purchased with the 
productions of the Southern States, and because these 
were purchased by slave labor, which was four times as 
cheap, in the operations of agriculture, as the white labor 

1 No. 481, 22 Cong., first session. 



420 FINANCIAL HISTORY OF THE UNITED STATES. [1833* 

of the Northern States. This was the true and only cause 
why the manufacturers required the government to inter- 
pose its powerful arm to keep down competition. It was, 
when properly considered, the greatest of all absurdities 
to suppose that it was against the English manufacturers 
that this protection was demanded. This was a mere 
flimsy disguise to cover the fraud, and conceal the out- 
rage, perpetrated against the planters." 

McDuffie advanced another argument, which he had 
originated two years before ; namely, that an import duty 
was not a tax upon the consumers of commodities on 
which it was levied, but fell exclusively on the original 
producers of the exports given in exchange for the im- 
ported commodities. And inasmuch as our exports were 
composed principally of cotton, rice, and tobacco, the tax 
levied on imports imposed a very unequal burden on the 
planters of the Southern States. This theory was sup- 
ported by the following reasoning. All commerce is an 
exchange of equivalents. The imports of a nation are 
precisely equal to its exports : the producer of the exports 
is therefore the producer of the imports ; and a tax upon 
imports is equivalent to a tax upon exports, and falls 
upon the producer of them. In elaborating this argu- 
ment, the importing merchant was represented as the mere 
agent of the planter, who was thus made to assume the 
character of a manufacturer of Manchester and Yorkshire 
woollens, who came in direct competition and rivalry with 
the cotton and woollen manufacturers of the United 
States. In this rivalry the Southern planter was obliged 
to maintain a competition on very unequal terms, inas- 
much as his manufactures made in Manchester and 



1832.] TAKLFF LEGISLATION. 421 

Leeds were subjected to an excise of forty per cent 
in the form of impost duty, while his Northern rivals 
brought their goods into market free from any tax what- 
ever. 

Appleton of Massachusetts answered this argument in 
a very few words : " It is perfectly true that the nation 
may be said to exchange cotton for manufactures ; but it 
does not follow that the planters do so, for the planters 
are not the nation : and there lies the fallacy." 

The bill was debated at great length; and the chief 
argument in favor of reducing the tariff was its unequal 
operation in the several sections of the Union, the North- 
ern and Middle States prospering at the expense of the 
others. Bell, of Tennessee, fully developed this idea. 
"It is admitted that the uncommon prosperity of the 
tariff States has been produced chiefly by the protective 
policy, and that the continuance of their prosperity de- 
pends upon the maintenance of this policy. There are 
nine States which are supposed to be, in whole or in part, 
particularly benefited by this system : they are Mary- 
land, Delaware, Pennsylvania, New York, Connecticut, 
Rhode Island, Massachusetts, and Vermont. Now, if 
these States owe their uncommon prosperity in a great 
degree to the protective policy, and this is admitted by 
the advocates of the tariff; and if the fact be that the 
other States of the Union do not prosper in an equal 
degree, but, on the contrary, are all comparatively de- 
pressed, and that the whole Southern section particularly 
is threatened with total impoverishment; and if this 
inequality has been produced by the policy of the gov- 
ernment, — ought not the balance — the equilibrium of 



422 FINANCIAL HISTORY OF THE UNITED STATES. [1832. 

prosperity at all events — to be restored if possible, and 
that as speedily as possible ? " 

On the other side, one of the strongest arguments 
pressed was, that the government, having encouraged peo- 
ple to manufacture by establishing a system of protective 
duties, could not withdraw this protection without a vio- 
lation of public honor. Said Mr. Evans of Maine, " The 
people have a right to expect and to demand that their 
interests, their property, and their pursuits shall not be 
the subject of sudden, frequent, capricious, experimental 
change in the measures of the government." 

The bill was passed the 14th of July, 1832 ; 1 and the 
duty on tea and coffee was removed entirely when im- 
ported in American vessels, and the duty on many things 
was reduced from thirty to twenty-five per cent ad valo- 
rem. 

From this legislation grew one of the most exciting 
events which had ever occurred in the history of the 
nation. South Carolina was so extremely displeased, that 
a convention, containing representatives of nearly all the 
great families of the State, met at Columbia the 19th of 
November, and five days afterward passed the celebrated 
nullification ordinance, the first declaration of which was 
the following : " That the tariff law of 1828, and the 
amendment to the same of 1832, are null and void, and 
no law, nor binding upon this State, its officers or citi- 
zens." The second declaration was the logical sequence 
of the first : " No duties enjoined by that law or its amend- 
ment shall be paid, or permitted to be paid, in the State of 
South Carolina, after the first day of February, 1833." 

1 22 Cong., first session, chap. 227. 



1833.] TARIFF LEGISLATION. 423 

The action of the government with regard to these 
proceedings is familiar history, and need not be repeated. 
President Jackson was alive to the situation. Though 
he adverted to the matter in his annual message to Con- 
gress in calm and temperate tones, he was preparing a 
proclamation, which appeared only a few days afterward, 
in which he very plainly told the refractory South Caro- 
linians what he should do if they made any forcible 
resistance to the execution of the laws of the United 
States. This proclamation was followed by asking Con- 
gress to confer additional powers adequate to the occa- 
sion. That body patriotically complied with his request. 
A force bill, as it was called, was speedily enacted ; but 
the South Carolinians, seeing the strong arm of the gov- 
ernment uplifted to vindicate the laws, suddenly changed 
their purpose, the nullification ordinance was repealed as 
hastily as it had been passed, and tranquillity was re- 
stored. 

At the next session of Congress, President Jackson 
recommended a reduction of the tariff, in order to ap- 
pease this fro ward State. He admitted that it would 
seem a violation of public faith, suddenly to abandon the 
large interests which had grown up under the implied 
pledge of our legislation, and added that " nothing could 
justify it but the public safety, which was the supreme 
law." The reason for the reduction was that the tariff 
then existing would produce too much revenue. Accord- 
ingly, a new bill was introduced, prepared by the secretary 
of the treasury, called " Verplanck's bill," in which the 
duties proposed were nearly the same as those contained 
in the bills of 1816 and 1818. A persistent effort was 



424 FINANCIAL HISTOEY OF THE UNITED STATES. [1833. 

made to pass it, but without success. Then Mr. Clay 
brought forward a bill, which was accepted by those who 
had been trying to pass the former one, and which was 
adopted by a large majority. Nevertheless, the warmest 
friends of protection, except Clay himself, opposed the 
bill. Nathan Appleton, a trustworthy critic, says that 
Mr. Clay acted under the mistaken idea, put forward 
by the administration, that the tariff of 1832 would pro- 
duce more revenue than was required for the administra- 
tion of the government. 1 

The leading provisions of this measure were the follow- 
ing: after the year 1833, the duties imposed on foreign 
imports by the Act of July 14, 1832, exceeding twenty 
per cent, were to be reduced to the extent of one-tenth 
of the excess ; and after the years 1835, 1837, and 1839, 
respectively, a further deduction of one-tenth of the 
excess; and two years afterward, a further deduction of 
one-half of the remainder of the excess ; and after the 
year 1842, the residue of the excess was to be deducted. 

That portion, also, of the Act of 1832, which fixed the 
rate of duty on milled and fulled cloth composed of wool, 

1 What is a Kevenue Standard ? pp. 17, 18. But Clay himself, in giving 
a history of the Act, affirmed he originated it unaided by suggestion, and 
unsupported by authority. He first thought of it while at Philadelphia, 
on a visit to his sister. He had a meeting of certain manufacturers at that 
city, who approved the plan. He saw Webster, but the latter did not 
approve it; neither did President Jackson, nor did other high and pow- 
erful persons whom Clay saw. Calhoun demanded a home valuation, but 
there were many opposed to that feature. Calhoun finally gave the meas- 
ure his support. The President's sanction was not gained without dif- 
ficulty. His most influential friends urged him to sign it. " They used 
arguments, and even threats, before they were successful." — Clay's Speech 
at Milledgeville, Ga., March 19, 1844. 



1833.] TARIFF LEGISLATION. 425 

the value of which did not exceed thirty-five cents a 
square yard, at five per cent ad valorem, was repealed. 
Such cloth was thereafter subjected to the same duty as 
other manufactures of wool; namely, fifty per cent ad 
valorem, diminishing in the manner just mentioned. 

The bill contained two other very important features, 
which were taken from the law passed the previous year. 
These were, that after the year 1842 duties on imports 
should be paid in cash, and assessed on the value of the 
goods at the port where they were entered. 

The compromise consisted in giving manufacturers ten 
years' notice to prepare for the final abandonment of 
the principle of protection. This principle, which had 
been in operation for forty years, was to be thrown 
aside at the end of half a century's national existence 
under the new constitution. " This," says an able free- 
trade authority of those times, " the manufacturers 
claimed as a right to protect investments into which they 
pretended to have been tempted by the government." l 
By the descending scale established by this Act, the 
average duties on all imports ranged from fourteen and a 
half to sixteen per cent. In 1836 the law was somewhat 
amended by reducing the duty on wines ; and, in 1841, 
the duty on railroad-iron was reduced to twenty per cent 
ad valorem. By the same Act, a duty of twenty per cent 
was laid on imports, which at that time were admitted 
free. With the exception of these slight changes, nearly 
a ten-years' trial was given to this legislation. 

The departure was radical. Hitherto the open and 
avowed policy of the government, so Robert J. Walker 

1 Dein. Rev., vol. xix. p. 171. 



426 FINANCIAL HISTORY OF THE UNITED STATES. [1841. 

declared, had been protection to home manufactures. 
Previous to the war of 1812 the duties on imports had 
been low; but the government had been exceedingly 
friendly to domestic manufacturing, while still greater 
protection was afforded by the warring condition of the 
nations of the Old World. The war of 1812 sadly blighted 
our commerce, but it aided wonderfully in developing our 
manufactures. Since then the government had continued 
to protect, raising ever higher and higher the barrier until 
now, when the policy was to be reversed, and, after ten 
years, utterly abandoned. 

The adoption of the horizontal scale of reduction, until 
all the duties should be reduced to one dead level of 
twenty per cent ad valorem, was an exceedingly crude 
piece of legislation ; but the law, it must be remembered, 
was a compromise, "and the friends of protection were 
not to be blamed because they could get nothing better." 
They did the best they could to save the interests they 
cherished so dearly. It was not a free-trade measure, but 
one which, at the end of ten years, would place the coun- 
try on a free-trade basis. It was not a protective measure 
in the sense of working effectively : it was simply what it 
purported to be, — an easing-down of the protective system 
until free trade should be reached. 

" Regarded either for revenue or protection," said Robert 
J. Walker, in his report in 1845, " the measure was a great 
mistake." A leading iron-manufacturer, when questioned, 
in 1842, with respect to the working of the law, re- 
marked that "the minimum in 1832 was arranged to 
meet our tariff, and the minimum of 1841, to operate 
on our manufacturers like a wasting disease, so that, 



1841.] 



TARIFF LEGISLATION. 



427 



when the crisis arrived, they might die without a faint 
struggle." 2 

What did the manufacturers of that time think of the 
law? Joseph Jackson, who testified before an investi- 
gating committee in 1842, said that he had bought iron 
for rolling at his rolling-mills in Jersey City, from five hun- 
dred to seven hundred tons per annum, at the following 
prices : — 





Per ton of 2240 lbs. 




Per ton of 2240 lbs. 


1832 . . 


. . $75.00 


1838 . . 


. $70.00 


1833 . . 


. . 72.00 


1839 . . 


. 70.00 to $66.00 


1834 . . 


. 70.00 to $65.00 


1840 . . 


. 65.00 to 60.00 


1835 . . 


. . 67.50 


1841 . . 


. 60.00 to 50.00 


1836 2 . . , 


. 67.50 to 85.00 


1842 . . 


. . 50.00 


1837 2 . . 


. 90.00 to 70.00 







Iron, which was sold in 1832 for a hundred and twenty 
dollars per ton, shrank in value to eighty dollars in 1842. 
A similar shrinkage befell every kind of iron manufac- 
tures. The reader will have no difficulty in believing 
that Mr. Jackson told the truth when he informed the 
committee " that so great a decline must stop our opera- 
tions." The story of the last ten years' business was 
truly a gloomy one; nor were there any bright streaks 
in the picture. The entire dome of the industrial sky 
was darkly colored. 

Surely the manufacturers of glass had not fared well. 
The production of flint-glass was begun in 1817, but it 
did not flourish until 1824. From that period until 1832 
the duties were three cents per pound and thirty per cent 
ad valorem, and twenty per cent ad valorem and two 
cents per pound on plain glass. The specific duty was 
1 Saltonstall's Report, No. 461. 2 Year of speculation. 



428 FINANCIAL HISTORY OF THE UNITED STATES. [1841. 

laid to counteract the effect of the British bounty of 
three cents a pound paid to the exporter. The Eng- 
lish manufacturer, who was also the exporter, thus 
favored by his own government, increased his importa- 
tion; and, as the duties grew lighter, the prospect of 
crushing his American competitor brightened. In 1841 
the struggle had become very unequal; for the English 
importer was not only favored with the low duties, but 
had also learned the art of invoicing his goods fraud- 
ulently, — a fact that was proved when seizures were 
made in New York in 1839. 

Even the cotton-manufacturers had been driven from 
some parts of their once cultivated field. Their British 
competitors, by using a short-staple cotton, and imitating 
the American fabric, had succeeded in driving American 
cotton manufactures from South America. Indeed, the 
home market was seriously threatened from the same 
cause ; yet the American cotton-manufacturer could re- 
view his experiment with considerable satisfaction. Im- 
provements in the manufacture of cotton had been costly; 
but the raw material was here, and water-power was 
abundant. The tariffs of 1816 and 1828 had given am- 
ple protection. What had been the result? The swift 
and effective application of capital to the manufacture of 
cotton, the calling into action of a manufacture of human 
labor previously dormant and inactive, " and all this with 
a constant reduction in the price of the commodities pro- 
duced, and an extension of the application of this one 
great staple to new products and uses." And what had 
produced this pleasing result ? The manufacturers them- 
selves declared that " it was the assurance of the home 



1841.] TARIFF LEGISLATION". 429 

market which gave confidence to capitalists," and "the 
stimulus of a protective tariff." 

It is true, for a considerable period previous to 1842 
this great industry was depressed. Notwithstanding the 
low price of cotton, stocks had accumulated "to a most 
inconvenient degree," and heavy losses were impending. 
The manufacturers attributed the depression in a great 
measure to the deranged state of money,, and the glutted 
condition of foreign markets caused by over-production. 
But the reduction in the tariff, and the heavy importa- 
tions which had followed, and the uncertainty which hung 
over the proceedings of Congress in regard to the tariff, 
added to the gloom and apprehensions of those engaged 
in the cotton manufacture. They very plainly told the 
congressional committee on manufactures, who were in- 
vestigating the subject, that " it would seem to be no time 
to try new experiments with this great interest, when the 
whole or the principal effect of so cutting down the tariff 
as to increase the imports of cotton manufactures would 
be the substitution of goods made from inferior foreign 
cotton in the place of our own better staple. That such 
a policy should be sustained by the representatives of the 
cotton-growing States, at the very moment when Great 
Britain is straining every nerve to supply herself with 
this staple from her own dominions, and with great ap- 
parent success, would imply such a self-sacrificing devotion 
to abstract theories as is, we believe, without example in 
the history of the world." 

The woollen-manufacturer had had a doleful experi- 
ence. The United States was the emptying-ground for 
the foreign manufacturer, who often sold his goods at 



430 FINANCIAL HISTORY OF THE UNITED STATES. [1841. 

auction; and, at the prices thus established, the home 
manufacturer was often obliged to sell in order to dispose 
of his products. This was the most serious obstruction 
lying in the path of his progress. Auction prices were 
too low for him ; and, unhappily, these prevailed much of 
the time. 

In 1823 wool was bought and shipped to England as 
a remittance, at sixty-two and a half cents per pound. 
During the subsequent period it fluctuated considerably ; 
the price advancing to seventy cents, and falling to forty 
cents. In 1841 it was worth forty-eight cents. At the 
beginning of the same period also (1823), fifty cents a 
yard was paid for weaving a four-dollar broadcloth : the 
work was done by men by hand. In 1841 the work was 
done on a power-loom, attended by a girl, at fifteen cents 
a yard, including the overseer's wages. In 1823 ten cents 
a pound was paid for spinning yarn from the rolls for the 
same kind of goods : in 1841 less than two cents a pound 
was paid, in consequence of introducing improved ma- 
chinery. In other branches of the manufacture the ex- 
pense had been lessened. The price of cloth that sold for 
four dollars and a half a yard in 1823, had fallen one- 
third. The introduction and expense of labor-saving 
machinery had fallen on the manufacturer, who had 
reaped but little benefit : the consumer had gained nearly 
the whole. All the foreign improvements, and many more, 
the products of American genius, had been introduced. 

One of the most prominent woollen-manufacturers of 
that day was certain, that, if the duties laid on woollens 
had been faithfully collected, the industry would have been 
profitable ; but frauds had been so numerous as to deprive 



1841.] TARIFF LEGISLATION. 431 

them, " not only of the interest on their capital, but, in 
most instances, of the capital itself." Half, if not more, 
of those engaged in woollen manufactures, during the 
nineteen years preceding 1842, had become bankrupt. 
Farmers and operatives had profited ; but the owners of 
factories, in the aggregate, had gained nothing. 

How much worse the cotton and woollen manufacturers 
would have fared, during this gloomy period of a waning 
tariff, had they not connived with the officers of the custom- 
house at New York to check importations by increasing 
the prices of invoices, and seizing goods, and subjecting 
importers to unexpected annoyances, cannot be deter- 
mined. That the manufacturers, through the agency of 
others, sought to do these things in order to prevent 
sliding down into ruin, has been clearly proved. 1 

The condition of another great industry may be de- 
scribed before closing this chapter. From 1816 to 1820 
the annual production of sugar increased from fifteen 
thousand to forty-five thousand hogsheads. At the latter 
period the capital invested in the industry was $34,000,- 
000. During the next two years, three hundred and 
eighty-three new estates were added to the three hundred 
and eight previously existing. The amount of the invest- 
ment was thus increased to 150,000,000. Before these 
new estates were prepared for making sugar, the tariff of 
1834 was adopted, and a hundred and fifty-six of them 
were compelled to abandon the business. Six years later 
the entire industry was threatened with annihilation. 2 

1 No. 6G9, 27 Cong., second session. 

2 The planters affirmed, in a memorial addressed to Congress, "Louisi- 
ana, with its uncertain climate and expensive operations, cannot produce 



432 FINANCIAL HISTOEY OF THE UNITED STATES. [1841. 



While the gradual reduction of the tax on foreign 
sugars was undermining this once prosperous industry, 
the sugar-planters themselves declared, in a memorial 
to Congress, that a diminution in the current price of 
that commodity, which was the object of the Compromise 
Act, could not be attained if they were compelled to 
abandon the cultivation of the cane. Nor was their 
statement unsupported by fact or reasoning. It was an 
axiom in commerce, they said, that, when a necessary of 
life was not commensurate to the demand, the cost of 
producing such a commodity had little to do with its 
price in the market. The truth of this axiom was fully 
confirmed by the influence exercised by the production 
of American sugar over foreign markets. 

During the last ten years, the prices in Havana in the 
month of April, for muscovado sugar, had been as fol- 
lows : — 

Per arroba. 

1830 .... 3 to 4 cents. 

1831 .... 2.5 to 3 " 

1832 .... 2.75 to 3 " 

1833 .... 2.377 to 3 " 

1834 .... 2.877 to 3 " 

Thus, although the duties were reduced, the price of 
sugar was not greatly changed. When the Louisiana crop 
for 1835-36 shrank to twenty-five thousand hogsheads, 
the price in Havana was nearly doubled, although the 

sugar under five cents and a half ; while in the West-India Islands, with 
their genial climate and cheap operations, muscovados can be produced so 
as to yield a fair remuneration at two cents and a half to three cents. Under 
these circumstances the enormous investments of capital in the cultivation 
of sugar, since 1816, would not have taken place, had not a continuation of 
the revenue-tax then laid upon foreign sugar been implicitly relied upon." 





Per arroba. 


1835 . 


. 4 to 4.627 cents. 


1836 . 


. 6.125 to 7 " 


1837 . 


. 3.5 to 4 " 


1838 . 


. 3.33+ to 4.5 


1839 . 


. 2.75 to 4 " 



1841.] TARIFF LEGISLATION. 433 

Cuban crop had been quite as large as usual. Conse- 
quently, the memorial affirmed that the gradual reduction 
of the tax on foreign sugars was nothing more than a 
premium granted to foreign industry, paid by American 
consumers. 

Intimately related to sugar-making was the business 
of sugar-refining. For a long period the duty on raw 
sugar was two cents and a half a pound, which was ample 
to prevent importation. This security had been given to 
the refiner ever since the inception of the business, and 
was enough to stimulate him to great undertakings. A 
large amount of capital was invested, a high degree of 
skill was required, and every improvement suggested in 
this country, or discovered abroad, was introduced. Ere 
long refiners were able to sell refined sugar at a lower 
price than the refiners of any other nation. They, indeed, 
had been successful in prosecuting their business. 



434 FINANCIAL HISTORY OF THE UNITED STATES. [1843. 



CHAPTER VI. 

TARIFF LEGISLATION. 
1842—1846. 

There had been a lull in tariff legislation for ten 
years. The free-trade party had been ascendant; and 
amendment of the law, save in the slight ways mentioned, 
had been impossible. During the decade, a financial tor- 
nado had swept over the country ; the United-States bank 
had ceased to be ; the experiment of keeping the govern- 
ment deposits with the State banks had been tried, and 
had failed ; the government had kept them several years 
without authority, but finally a bill had been passed 
which authorized keeping them in that manner. The 
time had now nearly come for reducing the duties to their 
lowest point. Manufactures were drying up at the root. A 
material augmentation of the national revenue from some 
source had become necessary, for it had fallen below the 
annual expenditure. Whatever difference of opinion ex- 
isted respecting the necessity of additional protection to 
manufacturers, some expedient, it was universally con- 
ceded, must be adopted to increase the public revenue. 
As no one favored direct taxation, a revision of the tariff 
was the only mode of enriching the treasury. 1 

1 The Democratic Review said, " We have seen that protection from 
the incident has been distorted into the principle, and that an advance 



1841.] TARIFF LEGISLATION. 435 

Forward, secretary of the treasury, in his annual report 
at the close of 1841, discussed the subject, not only with 
reference to increasing the duties because the government 
needed a larger revenue, but also with reference to various 
important changes in the mode of collecting duties, if the 
law of 1832 should be continued. " It is fully acknowl- 
edged," he said, " that all the duties should be laid with 
primary reference to revenue ; and it is admitted, without 
hesitation or reserve, that no more money should be raised, 
under any pretence whatever, than such an amount as is 
necessary for an economical administration of the govern- 
ment." But within those limits, and incidental to the 
raising of such revenue, he believed there might be such 
a discrimination in imposing duties, that, while no part of 
the country should suffer loss or inconvenience, a most 

of duties, from five to forty per cent average, has produced no other result 
than to give strength to the manufacturers in seeking to enforce further 
special legislation for their benefit. The evil has become so great as to 
lead to the consideration, whether it should not be counteracted by an 
entire abandonment of indirect taxes, and an abolition of the custom- 
house. By such a course, a patronage of some eleven thousand offices will 
be taken out of the hands of the Federal Government, and a source of vast 
corruption dried up. The wants of the Federal Government may be 
$22,000,000 per annum, besides the land revenues. This could be easily 
raised by a tax apportioned among the States. As, for instance, the mill 
tax of New York yielded $655,067, a two-mill tax would give at least 
$1,200,000, which would be collected, without any increase of machinery, by 
the comptroller of New York, with the State taxes, and placed to the credit 
of the Federal treasury. The collection would not cost a dollar; and the 
support of the Federal Government would fall upon property instead of 
upon labor. The economy and feasibility of such a system is superior to 
that of customs. By the removal of the latter, many evils would be reme- 
died, particularly that of every few years arraying the manufacturers against 
the government, and making the distress of work-people the means of war- 
fare."— Vol. xix. p. 174. 



436 FINANCIAL HISTORY OF THE UNITED STATES. [18458. 

beneficial degree of protection could be extended to the 
labor and industry of large masses of the people. 

The committee on manufactures did not report :o the 
House until the last of March, 1842. Believing, like most 
of the merchants and manufacturers, that specific duties 
afforded the best security against frauds, they were gener- 
ally retained. The leading provisions of the bill reported 
by the committee were the following : — 

1. A general ad valorem duty of thirty per cent, with 
few exceptions where the duty was on that principle. 

2. A discrimination was made for the security of certain 
interests requiring it by specific duties, in some instances 
below, in others above, the rate of the general ad valorem 
duty. 

3. As a general principle, the duty on the articles sub- 
ject to discrimination was made at the rate at which it was 
in 1840, after the deduction of four-tenths of the excess 
on twenty per cent by the Act of 1833. 

The report accompanying the bill was exceedingly elab- 
orate, and contained much valuable evidence, from manu- 
facturers and others, concerning the working of the law 
of 1832, the present condition of the leading industries, 
and what in their opinion was needed to make domestic 
manufacturing more prosperous. They declared that much 
more evidence would have been presented, had Congress 
given the requisite authority to collect it. A single ex- 
tract from this document will enable the reader to get some 
idea of its tone and nature. 

"All the great interests of the country are now in an ex- 
tremely depressed condition : every branch of industry is par- 
alyzed. How is it that in a time of profound peace, with a 



1842.] TARIFF LEGISLATION. 437 

country abounding in natural resources, and blessed by Heaven 
beyond any other people who ever existed, the voice of com- 
plaint should come up from every part of the land ? 

' ' There are several causes for the present depression of 
property, and general stagnation of business, one of which will 
be admitted to be the large amount of our importations over 
the amount of exports. This depresses our home industry, 
and drains from the country annually large balances in specie, 
crippling our banks, and depriving them of the power to grant 
the necessary facilities. The same causes produced the exhaus- 
tion of our resources, and the embarrassment, which were the 
principal cause of the adoption of the constitution. From 1783 
to 1789 the trade of the thirteen old States was perfectly free 
to the whole world. The result was, that Great Britain filled 
every section of our country with her manufactures of wool, 
cotton, linen, leather, iron, glass, and all other articles used 
here ; and in four years she swept from the country every dollar, 
and every piece of gold." 

As usual, there was a minority report, quite as lengthy, 
which swept over the whole field. Most of the speeches 
that followed were as profitless as the discourses of a for- 
mer day concerning the grades of angels. The really 
valuable light turned on the subject was emitted by the 
manufacturers, who had appeared before the committee. 
Long before, it had become evident that mere human 
reasoning was altogether inadequate to settle the question. 
What was wanted, through all these years, was an honest 
and thorough inquiry into the condition of American 
manufactures, and the workings of the various laws which 
had been passed touching these interests. 

The subject was discussed at great length by the House, 



438 FINANCIAL HISTORY OF THE UNITED STATES. [1843. 

although the time was drawing near for making the last 
reduction under the compromise law of 1832. Something 
must be done. Accordingly, Fillmore, chairman of the 
Committee of Ways and Means, reported a bill to extend 
the existing tariff laws until the first day of August, 1842, 
which was immediately passed by the House ; but the 
Senate amended the bill by adding a proviso that noth- 
ing therein contained should suspend the operation of the 
distribution law, — a law passed at the extra session of 
the preceding year, distributing the proceeds of the sales 
of ' the public lands among the States. The first half- 
yearly distribution was to take place the 1st of July. Be- 
sides, there was another reason for passing this temporary 
law. Under the compromise Act, after the 30th of June, 
there was to be a home valuation and cash duties. No 
law had yet been enacted to regulate their collection, and 
it was questioned whether there was any authority to col- 
lect them. 

In the debate on this bill the proviso became a promi- 
nent topic of discussion. The distribution Act contained 
a proviso, that, if at any time the duties under the com- 
promise tariff should be raised, the distribution should 
cease, and be suspended until the cause of the suspension 
were removed. This proviso to the distribution Act was, 
at the time of passing the bill, highly objectionable to 
many of the friends of distribution ; but its adoption was 
found necessary to insure its passage, the advocates of a 
low tariff apprehending that the diversion of money accru- 
ing from land-sales would necessitate an increase of duties. 
Those who were in favor of high protective duties desired 
the removal of the proviso of the distribution Act in order 



1842.] TARIFF LEGISLATION. 439 

that the tariff might be raised without interfering with 
distribution. The House having rejected an amendment 
proposing to strike out the proviso which prohibited the 
suspension of the distribution law, the bill was passed 
by the House, and afterward by the Senate, but vetoed by 
the President. 

Another tariff bill was introduced by Mr. Fillmore, 
drawn by the secretary of the treasury, — to which, how- 
ever, the committee added a proviso that the distribution 
of the proceeds of the public lands should be distributed, 
notwithstanding the increase of duties, — which passed 
both Houses after a short debate. This contained a re- 
vision of a considerable number of duties, and was also 
vetoed by the President. 

Impelled by the necessity of providing additional reve- 
nue, a bill was rapidly pushed through Congress, similar 
to that previously passed, with the omission of the pro- 
viso requiring distribution, and further modified by admit- 
ting free of duty tea and coffee growing east of the Cape 
of Good Hope, imported in American vessels. This bill 
was approved by the President. 1 

A separate bill was then passed, repealing the proviso 
of the distribution Act, and allowing the distribution to 
take place, notwithstanding the increase of duties ; but 
the bill was retained by the President, and defeated. 

Thus ended a long and bitter controversy, in which 
public sentiment expanded, and hardened against the 
chief Executive of the nation. Adams made a lengthy 
report against what he regarded a usurpation of power by 
the President, and recommended such an alteration of 

1 Aug. 30, 1842, 27 Cong., second session, chap. 270. 



440 FINANCIAL HISTORY OF THE UNITED STATES. [1843. 

the Constitution as would enable Congress to enact laws 
by a simple majority vote, instead of a two-thirds vote, 
whenever bills were sent to the President for his approval, 
and did not receive it. 

That tariff remained without change during the next 
four years. In expectation of higher duties, importa- 
tions were enormously increased, importers believing that 
prices would advance, and that their profits would be 
larger. They over-stocked the market, and at a time, too, 
when the people were feeling poor, not having fully re- 
covered from their terrible reverses. So prices fell. Not 
even by damming up the channel of imports with higher 
duties could the downward movement be prevented. Of 
course, this condition of the market caused a great de- 
cline in importations. 1 During the first nine months of 
the new tariff, imports amounted only to 164,753,799, 
of which about $24,000,000 were dutiable goods, paying 
nearly thirty-six per cent average duty. For the next 
two years the imports were 1225,689,599, and the duties 
$60,188,774, or twenty-seven per cent, which was a re- 
turn to the war-tax of 1812. 2 When the secretary of 
the treasury made his first report, after the law went 
into effect, he declared the time had been too short to 
furnish any decisive evidence respecting its permanent 
influence on importations. Foreign trade continued to 
decline, and importations were slight. How far this 
state of things was caused by the existing system of 
duties, it was impossible to determine. He declared, how- 

1 See Report of Com. of Ways and Means, No. 227, 27 Cong., third ses- 
sion. 

2 Dem. Rev., vol. xix. p. 172. 



1843.] TARIFF LEGISLATION. 441 

ever, that the smallness of the importations might well be 
accounted for by the embarrassed condition of the coun- 
try, and the extremely limited means of purchase. Prices 
of foreign goods had heavily declined during the year : it 
could hardly be affirmed, therefore, that the diminished 
importation was caused by the system of duties which had 
gone into effect. 

Those opposed to the tariff-law declared that the de- 
cline in importations was chiefly due to the very high 
duties which had been imposed. 1 As more revenue was 
needed, they accordingly advocated a reduction of duties. 
On the other hand, it was said that the decline in impor- 
tations was mainly owing to other causes, and that a 
reduction of the duties would not increase the revenues, 
— perhaps they would shrink still more. "When the ob- 
ject of taxing imports is purely to get a revenue, and the 
largest possible amount, what tax shall be levied can be 
exactly determined only by experiment. If there be a 
uniform duty of forty per cent, for example, a reduction 
to thirty per cent may have the effect of increasing the 
imports more than twenty-five per cent, in which case the 
revenue is increased; but, if imports are not increased 
twenty-five per cent, there is a loss of revenue by redu- 



1 The Committee of Ways and Means affirm in a report on this subject, 
March 11, 1844, "The fact of the great falling-off in the importations of 
many important articles, as well as in the aggregate of dutiable importa- 
tions, under the present law, will be apparent; and, whatever other influ- 
ences may have affected the trade of the country during the various years, 
it will be difficult to believe that the high duties under the present law have 
not had a powerful effect, if not the chief agency, in producing the result." 
McKay was chairman of the committee, who was strongly in favor of 
free trade. 



442 FINANCIAL HISTORY OF THE UNITED STATES. [1844. 

cing the duty. It is certain, if high duties had not been 
the chief cause in reducing imports, the protectionists 
could not fairly claim, as they did, that the tariff had 
been the effective agent in protecting their interests. 
They could not prove both claims, — that the law was 
protective, and yet not effective in checking importations. 
If protection had been afforded by it, importations had 
been diminished : on the other hand, if the law had not 
checked importations, how could it have furnished any 
protection ? 

The next year four million dollars more were wanted 
than the estimated income, and four and a half million 
dollars the year following. How should this estimated 
deficiency be raised? John C. Spencer, who was now 
secretary of the treasury (the third during Tyler's admin- 
istration), discussed the subject at considerable length. 
A reduction of expenditures was one way. Then he 
turned to the question of taxation. Direct taxation was 
impracticable : no permanent increase could come from 
any modification of the land system. Some temporary 
accession might be obtained by reducing the price of land 
offered for sale ; but such a change would hazard, if not 
destroy, a rich fountain, whose regular and steady stream 
was kept up by maintaining the policy then pursued by 
the government. Our ultimate resources, therefore, he 
declared, must be duties on imports. But he was unable 
to discover how any existing duties could be increased 
with a reasonable prospect of augmenting the revenue. 
The danger was, that, if imports were subjected to a 
higher duty, they would be either clandestinely intro- 
duced, or not imported at all. Looking at the subject 



1844.] TAEIFF LEGISLATION. 443 

exclusively with reference to revenue, he was not pre- 
pared to specify any very important rates of duty that 
would bear reduction. He added, however, that those 
levied on glass, particular kinds of iron, coal, and sugar, 
were considered by many too high for revenue purposes. 
The last way of raising the revenue needed, that he 
could discover, was to tax tea and coffee. The opinions 
of importers of these commodities, of merchants, and of 
officers of customs in various parts of the United States, 
were " unanimously and decidedly in favor of such duties," 
as "more equal and less burdensome than any other 
mode by which the same amount could be collected." 

Congress, though, did not see fit to heed the recommen- 
dation ; but the next year, when the annual report of the 
secretary of the treasury was presented, a more favorable 
account was given of the national income. Bibb affirmed 
that the system of revenue established by the law of 1842, 
for imposing duties on imports, would yield a much 
greater amount of annual revenue than was necessary 
for the support of the government, the public credit, and 
the wants of the treasury. 

So long as Congress kept within the confines of raising 
revenue necessary for the support of the government, to 
maintain the public credit, and to provide for the common 
defence and general welfare, the incidental encourage- 
ment and protection of domestic manufactures, arising out 
of the mode of laying such necessary revenue by duties 
on imports, he contended, was rightful, — " an inevitable 
attendant upon the exercise of delegated power. 

" The value of goods," he further remarked, " and mer- 
chandise imported free of duty, bears a great proportion 



444 FINANCIAL HISTOBY OF THE UNITED STATES. [1844. 

to the value of those imported paying duty. By such 
exemptions from duty, the inequality of the burden of 
taxation between the respective classes of consumers is 
increased. By enlarging the circle of articles charged 
with duty, and diminishing the circle of articles exempted 
from duty, the proportions of contribution to the public 
treasury can be made to bear more fairly and equitably 
upon those who pay these ' indirect taxes. By lowering 
the rate of duties, and abridging the list of articles ad- 
mitted free of duty, the comforts and consumption of the 
people will be enlarged, the temptation to smuggling will 
be decreased, and the necessary sum of revenue will be 
more certainly raised." Bibb, therefore, recommended 
lessening the rates of duties, and that all articles im- 
ported be subjected to duty, excepting such as should be 
imported for the use of the United States, and in certain 
other cases. 1 

Congress did not heed his recommendations. The 
tariff remained unchanged until 1846. From 1832 to 
1840 the subject slept, because the majority of Congress 
were opposed to any change ; but with the election of 
Harrison, in 1840, the tide in the House turned. The 
protectionists formed a majority, and a fresh agitation was 
begun. Had Harrison lived, the bill of 1842 would have 
been different from what it was. Had not the government 
required a larger revenue from some source, doubtless 
Tyler would not have approved any bill increasing the 
tax on imports. The needs of the government were so 

1 Annual Treas. Report, December, 1844. There was one defect in the 
law, needing amendment : it discriminated against the wines of Portugal, 
contrary to treaty. — Report No. 124, 28 Cong., first session. 



1844.] TARIFF LEGISLATION. 445 

great that he could not do otherwise. Each secretary 
of the treasury discussed the subject, and no one regarded 
the law as a permanent piece of legislation. At nearly 
every session of Congress the subject was agitated. Such 
constant attempts to change the tariff were by no means 
favorable to the development of our manufacturing inter- 
ests. "No complaint," said McKay in 1844, 1 "has been 
more universal, nor, as the committee believe, better 
founded in fact, than that which comes from the manu- 
facturers, the merchants, and all other classes of business- 
men interested in the matter, and relates to the frequent 
and extreme changes and fluctuations so constantly ex- 
perienced in the legislation of Congress upon the subject 
of the tariff." 

Importations on foreign account constantly increased. 
Of the total amount imported from England in 1840, and 
entered at the custom-house in New York, sixty-five per 
cent was on English account, and thirty-five per cent 
on American. From all other countries, China excepted, 
the proportion in favor of foreign importation on foreign 
account was the same as that from France ; viz., eighty- 
three per cent. 2 Thus, like the people of Babylon, we 
had suffered the foreigner to control the import-trade 
of the country. 

During the period under review, notwithstanding the 
increased tariff, prices were largely reduced. The reduc- 
tion was not due wholly to the tariff, but it was a co- 
operating cause. The severe times through which the 

1 March 11, No. 306, 28 Cong., first session. 

2 Ingersoll's Minority Report, April 4, 1844, No. 306, 28 Cong., first ses- 



446 FINANCIAL HISTOEY OF THE UNITED STATES. [1846. 

country had passed, the suffering endured, and the loss of 
wealth sustained, — these causes also contributed in re- 
ducing prices. 

It may be remarked that higher duties 1 had been 
adopted for the purpose of raising a revenue, and of 
throwing greater protection over American manufactures. 
Did the law fulfil the expectation of its originators ? Else- 
where we have shown, that, after it had been executed for 
a considerable period, the revenues were insufficient to 
pay all the expenses of the government. Importa- 
tions were very much checked through the inability of 
the people to purchase. But in 1843 imports swelled, 
the revenues became ample, and there was no need of in- 
creasing them. The law, therefore, fulfilled the expecta- 
tion of its authors in this regard. 

But it may be asked, Was not that a marvellous law, 
and the perfection of legislation, which increased the 
revenue, and revived the withering manufacturing inter- 
ests of the land? How could increased revenue and 
more protection be obtained from the operation of the 
same law? Let not the reader puzzle himself with the 
question : let him fix his eye steadily on the facts, and he 
shall learn the answer. More protection was obtained by 
checking importations : this fact no one will dispute. 
Another fact is equally clear: although importations 
were diminished, the revenues were not, because, in con- 
sequence of the higher duties imposed, a larger revenue 

1 The appendix to Hudson's Report, No. 420, 28 Cong., first session, 
contains a large number of very valuable tables, showing the decline in 
prices after the increase of duties in 1841. The report itself is in Niles, but 
not the appendix, which is the most valuable portion. 



1841.] TARIFF LEGISLATION. 447 

was collected from the importations than had been col- 
lected previously from larger importations paying lighter 
duties. A third fact may be noted : the revenues, so 
long as the law existed, were ample, after its full effect 
appeared. 

The effect of this tariff-law was highly satisfactory to 
the believers in governmental protection. One of the 
leading cotton-manufacturers of the day, after reviewing 
its effect on all the leading articles of consumption, 
remarked, "Its adoption was one of those events which 
stamp a decided character on the period in which they 
occur. It may be said to be the first pivot on which 
turned the fate of the country. The currency had been 
long deranged , with a deficient revenue, the credit of the 
general government had been reduced to the lowest ebb ; 
trade was prostrate, industry paralyzed ; the public mind 
was filled with apprehension and dismay at the portentous 
indications of the future, — when this measure, adopted 
with the greatest difficulty, carried almost by miracle, 
changed, as if by enchantment, the whole scene. In the 
short space of a year, the whole country passed from the 
depth of suffering, idleness, and depression, to a state of 
the most active prosperity and the fullest confidence. No 
one capable of tracing cause and effect can doubt that 
the change was the direct and immediate result of the 
tariff." i 

Alas for the manufacturers! Their prosperity was 
short-lived. Their summer — like that of the dwellers in 
the Red-river settlement of the North, where the sun- 
shine, brief, but brilliant, clothes the valley with an almost 

1 Nathan Appleton, What is a Revenue Standard ? etc., p. 1L 



448 FINANCIAL HISTORY OF THE UNITED STATES. [1846. 

tropical luxuriance, and rich crops ripen, and fruits and 
flowers of the South mature in a brief period — was to 
pass swiftly, and be succeeded by a long, dreary, and un- 
welcome winter. 



1846.] TAKIFF LEGISLATION. 449 



CHAPTER VII. 

TARIFF LEGISLATION. 
1846-1860. 

In 1846 the tariff was radically changed. Polk was 
President. When in Congress, he had generally favored 
low duties; but, as the electoral vote of Pennsylvania 
must be won to insure his election to the presidency, he 
wrote a letter, during the canvass, in which he tried to 
make the people of that State believe he was in favor of 
a tariff that would afford sufficient protection to their 
various manufacturing interests. Having been elected, he 
placed at the head of the treasury department Robert J. 
Walker, whose first report was such an unequivocal and 
elaborate argument for free trade, that it secured the rare 
praise of republication by the British Parliament. The 
manufacturers of Great Britain having zealously labored 
for Polk's election, and contributed munificently to that 
end, perhaps a decent regard for the donors required the 
appointment of a secretary of the treasury who should 
thus labor in their behalf, however disastrous might be 
his efforts to the wealth and happiness of his own coun- 
trymen. 1 Anyhow, the President could not have chosen 

1 The London Times said during the campaign, "A subscription was 
recently opened to raise funds to circulate free-trade tracts in foreign 
countries. About four hundred and forty thousand pounds were sub- 



450 FINANCIAL HISTORY OF THE UNITED STATES. [1846. 

a finance secretary more acceptable to the English man- 
ufacturers, who, whether free trade be advantageous to 
the American people or not, have never doubted that 
their own interests were promoted by making trade as 
free as possible among all nations. 

In this celebrated document, Walker announced the 
following propositions, which formed the basis of all his 
reasonings on the subject : — 

1. That no more money ought to be collected than was 
necessary for the wants of the government, economically 
administered ; 

2. That no duty should be imposed on any article above 
the lowest rate which would yield the largest amount of 
revenue ; 

3. That below such rate discrimination might be made, 
descending in the scale of duties, or, for imperative 
reasons, the article might be placed in the list of those 
free from all duty ; 

4. That the maximum revenue duty should be imposed 
on luxuries ; 

5. That all minimums, and all specific duties, should be 
abolished, and ad valorem dnties substituted in their place, 
care being taken to guard against fraudulent invoices and 
undervaluation, and to assess the duty upon the actual 
market value ; 

6. That the duty should be so imposed as to operate as 

scribed. Some of these tracts are to be printed in New York for circula- 
tion in the United States." At Manchester a hundred thousand pounds 
were raised for the same purpose. It has never been denied that most of 
the money thus raised was used to elect Polk, with the expectation or 
understanding that the tariff of 1842 would be radically modified in the 
direction of freer trade. See 67 Niles, pp. 39, 77. 



1846.] TARIFF LEGISLATION. 451 

equally as possible throughout the Union, discriminating 
neither for nor against any class or section. 

Some articles, he remarked, would yield the largest 
revenue, when paying duties that would be wholly or 
partly prohibitory in other cases. The highest revenue 
duties could be collected from luxuries; but even some 
very costly ones, easily smuggled, would bear but a light 
duty for revenue, while other articles of great bulk and 
weight would bear a higher one. No nation had ever 
enacted a horizontal tariff; but while it was impossible 
to do this, or even to adopt any arbitrary maximum, 
experience proved that generally a duty of twenty per 
cent ad valorem yielded the largest revenue. On many 
things a lower rate would be the most productive. 

The constitutional power of Congress " to lay and col- 
lect taxes, duties, imposts, and excises," did not authorize 
the laying of a prohibitory duty, or a duty in which rey^-- 0Ui 
nue was sacrificed to the object of protecting the manu- 
facture of the commodity that was taxed. 

Taxation, he further remarked, whether direct or in- 
direct, should be nearly as possible in proportion to prop- 
erty. If the whole revenue were raised by a tax upon 
property, the poor would pay a very small portion of such 
a tax; whereas, by the consumption of imports, or of 
domestic commodities enhanced in price under the tariff, 
the poor were made to pay a much larger share of the 
taxes than if they were collected by an assessment in 
proportion to property. To counteract, so far as possible, 
this effect of the tariff, and make it approximate to a sys- 
tem of taxes in proportion to property, the duties upon 
luxuries should be fixed at the highest revenue standard. 



452 FINANCIAL HISTORY OF THE UNITED STATES. [1846. 

This would not be discriminating in favor of the poor, 
but would mitigate that discrimination. 

A bill was introduced into the House, embodying the 
views of the secretary, which passed without lengthy 
debate. In the Senate, the question of adopting the 
ad valorem system, in preference to specific duties, was 
debated at great length, and with much ability. Several 
amendments were offered ; but the bill finally passed with 
no notable alteration, save one relating to the collection of 
duties. The friends and opponents of the measure were 
so evenly divided, that the Vice-President, Dallas, was 
obliged to vote in order to secure its passage. 1 Coming 
from Pennsylvania, we may well imagine that the duty 
was not pleasant to perform. 

The law was very unpalatable to American manufactur- 
ers. A tariff born under such conditions, and sponsored 
bv the English nation, the believers in protection might 

£ 

well shrink from accepting, with not less reason than 
Laocoon did the wooden horse filled with armed men. 

In enacting this law, the ideas lying at the bottom of 
the tariff of 1832 rose to the surface, except that the 
absurd doctrine of a horizontal reduction was replaced 
with a better mode for reducing duties. The ad valorem 
system was now extended to the outermost edge : hence- 
forth Congress could go no farther, save to reduce or 
abolish the rates. Setting aside the increased danger of 
fraud, it was objected that an ad valorem duty was alto- 
gether too fluctuating and uncertain; that at one time 
it might be too high, at another too low, the ever-varying 
changes in the price of goods producing this effect. The 

1 The bill was passed July 30. 



1846.] TARIFF LEGISLATION. 453 

sliding scale of the English corn-laws was intended to 
make the price uniform by imposing a high duty when 
corn was cheap, and gradually diminishing the duty 
almost to nothing as the price rose. This was harshly 
censured by the advocates of free trade in England for its 
uncertainty, who contended that all variations in duties 
were pernicious. But an ad valorem duty was the same 
sliding scale reversed. When the commodity imported 
was dear, the duty rose, and the payment of it constituted 
a heavy burden ; but when the commodity became cheap, 
and a high duty would hardly be felt by the consumer, 
the duty fell. Thus fluctuation in prices, which can never 
be wholly avoided, but which usually brings evil, was in- 
creased by the adoption of the ad valorem principle. 

How did this sliding scale affect the manufacturer ? 
When prices abroad were high, and protection was less 
needed, the effect was to increase his profits ; but when 
prices fell, and protection was needful, the duty fell too, 
and his struggle against competitors was intensified. 
When the price of bar iron was ten pounds sterling in 
England, the duty of thirty per cent might be adequate 
protection ; but, when the price was only four or five 
pounds per ton, the duty fell in proportion, and the Amer- 
ican manufacturer must suffer. Calhoun saw this defect 
so clearly, that he favored the adoption of a sliding scale 
of an opposite kind, in levying duties on railroad iron, 
like that embodied in the English corn-law. His view, 
though, was not entertained by many. Walker was 
master of the situation, and the manufacturer could do 
nothing. 1 

i Protection and Free Trade, etc., Salem, 1846, pp. 23, 24 



454 FINANCIAL HISTORY OF THE UNITED STATES. [1848. 

The war with Mexico, the discovery and yield of 
gold in California, and the famine in Ireland, which 
created an extraordinary demand for our breadstuffs, 
delayed the dreaded ills which were expected to ap- 
pear from the withdrawal of protection. Nevertheless, 
they appeared too soon, and were too potent to be 
resisted. 

In 1851 the " American Review " said that the im- 
mense importations of foreign merchandise into the 
country, in consequence of the encouragement held out 
by the present tariff, were beginning to be severely felt 
by the commercial and trading interests, and would surely 
result in the most ruinous consequences to the coun- 
try at large. The low prices to which the staple 
articles of agriculture had fallen must convince farmers 
and planters that increased importations were not coun- 
terbalanced by exportations of produce, notwithstanding 
the predictions of the late secretary of the treasury, 
Mr. Walker. 1 

The growth of fraud under the law was rapid and de- 
moralizing. Gallatin, in 1801, had urged an extension of 
specific duties in order to prevent undervaluation. In 
his annual report for that year, he said, " Without any 
view to an increase of revenue, but in order to guard as 
far as possible against the value of goods being under- 
rated in the invoices, it would be eligible to lay specific 
duties on all such articles, now paying duties ad valorem, 
as may be susceptible of that alteration." The nu- 
merous frauds occasioned by the adoption of the ad 
valorem system were clearly set forth by the various 

i Vol. xiv. p. 270. 



1849.] TAEIFF LEGISLATION. 455 

collectors in their reports to the secretary of the treasury 
in 1849. 1 

The Democratic party at this period were very hostile 
to the tariff. The Democratic convention of Hamilton 
County, Ohio, addressed the following letter to the secre- 
tary of the treasury, which was a fair and candid expres- 
sion, generally, of those who belonged to that party: 
"Manufacturers are not of themselves objects of desire 
to a free people, or of favor for a free government. They 
involve the necessity of a crowded population, subject to 
a very arbitrary control over their comfort by a few 
wealthy persons, and devoted to unwholesome employ* 
ment. Surely such establishments do not deserve polit- 
ical favor, where land is abundant, and the people free." 

The prospects of the manufacturing class were dark 
enough. Their political power had waned. Their oppo- 
nents were strong, and likely to control the legislation of 
the country for many years. The Irish famine was indeed 
a blessing to us ; opening, as it did, an outlet for all the 
breadstuffs that could be spared, and sending gold into 
the country. But these events were unexpected and 
temporary ; and ere long gold began to flow eastward to 
pay the increasing European balance. Happily, the 
chasm occasioned by the outflow of the precious metals 
was filled by the newly discovered treasures of California. 
Nearly all the gold found there came to the Atlantic 
coast, remained for a short time, and then fled to Great 
Britain. Though only a small portion was retained in 
the country, the discovery had the unspeakable value of 

1 See Annual Report, December, 1849 (pp. 690-834), for a valuable col- 
lection of facts respecting the working of the law. 



456 FINANCIAL HISTORY OF THE UNITED STATES. [1855. 

furnishing us with enough to pay a large portion of the 
balance due to foreign nations, thus averting for several 
years the ill consequences which otherwise would have 
followed increased importations. 

Another cause contributing to the same end was the 
transfer of American securities in settlement of foreign 
indebtedness. Ever since the existence of our govern- 
ment they had been owned abroad in varying quantities. 
Most of the stock of the first United-States bank was thus 
held ; also a large portion of the public debt, nearly all 
the three-per-cent certificates, and many of our railroad 
stocks, bonds, and other securities. In 1855 it was esti- 
mated that two hundred million dollars were held in for- 
eign countries. 1 The transfer of so many securities had 
the effect of keeping coin in the country, although there 
was an annual return for interest, unless invested in other 
securities. 

Though the outflow of gold was thus checked, the money- 
market became dearer, and the inclination to begin more 
undertakings was wanting. Said a competent authority 
in 1855, "Since the destruction of the old tariff, money 
has been hard to obtain, and business-men have been 
distressed, year after year, without intermission. The mo- 
ment money becomes a little easier, away go the orders for 
foreign goods, to be paid for in specie." 2 Of course, the 
value of money was immediately enhanced, and debtors 
felt the renewed pressure. 3 

Every branch of industry suffered during this period ; 
but the woollen-manufacturers suffered the worst. The 

1 Finance Report for Year ending 1856, p. 426. 

2 A Review of the Tariff of 1846, etc., Boston, 1855, p. 7. 3 Ibid., p. 14. 



1857.] TARIFF LEGISLATION. 457 

iron-manufacturers, indeed, saw gloomy times, and sus- 
tained heavy losses ; but they were not so heavily handi- 
capped as the woollen-manufacturers, who were obliged 
to pay more for their raw materials in consequence of the 
duties levied, and which were not recovered in the sale of 
the manufactured product. The tariff of 1846 raised the 
duty on imported wool to thirty per cent ; while it reduced 
the duty on imported flannels and blankets to twenty-five 
and thirty per cent, and, on the coarser fabrics, to twenty- 
five per cent. 

As these low-priced manufactures of wool were the 
chief in quantity and value manufactured at that time, 
the business was prostrated by the reduction of the duty. 
K The home market was destroyed for the farmer : in the 
foreign market he could not compete ; and the flocks were 
sent to the slaughter because the woollen-factories had 
been sold at auction, or converted to other services." 1 In 
1844 woollens yielded $3,313,495 duties: in 1855 the 
national income from the same source was $6,088,157, or 
nearly twice as great as it had been ten years before. 
Indeed, in 1857 the industry was declared to be on the 
« verge of extinction." 

The cotton and iron industries had fared better. The 
American iron production for 1850 was $60,485,655, while 
the foreign importation for the same period was only 
$16,333,145. The secretary of the treasury declared that 
the conclusion was irresistible, that the production and 
manufacture of iron in the United States, within a very 
short period, would exclude the foreign production and 
manufacture. Of cotton, he added that already the 

i Tariff Report, Aug. 11, 1856, No. 312, 31 Cong., first session. 



458 FINANCIAL HISTORY OF THE UNITED STATES. [1853. 

American manufacturer was in possession of the home 
market for all the coarser fabrics, and beginning suc- 
cessfully to manufacture the finer ones. 1 

The drain of gold, however, in keeping prices down, 
and business sluggish, had the further effect, in due time, 
of diminishing importations. Sales slackened, and the 
importer wisely reduced his stocks. But having imported 

1 When Corwin, the secretary of the treasury, reviewed, in his annual 
report presented to the House, Jan. 20, 1853, the effect of the tariff on the 
iron manufacture, he remarked that "importations of bar, pig, and other 
iron, for the year ending June 30, 1845, were 102,723 tons, producing duties 
amounting to $1,794,784; and for the year ending June 30, 1852, the imports 
were 435,149 tons, producing duties amounting to $3,272,812. Thus it is 
seen, that, while the quantity imported has increased about four and a 
quarter times over that of 1845, the aggregate duties received are less than 
double the amount received from that source in 1845, and that, too, under 
a heavier rate of duty at the latter period. 

"This enormous increase in the importations of iron, at prices so far 
below the fair or usual cost of production, both here and abroad, while it 
produced no corresponding benefit to the treasury, destroyed, in a good 
degree, the competition of our own producer and manufacturer. The re- 
sult then foretold is now partially realized : the foreign producer, by a 
reduction of prices on his part, and of duties on our part, having possessed 
himself of the control of our market, raises the prices of iron, it is believed, 
beyond the remunerating point, and certainly far beyond the rates ruling 
during the period of the late hopeless struggle of our own manufacturer to 
sustain himself. 

" The effects of this state of things are felt in the very large increase of 
duties consequent upon the suddenly enhanced prices of iron, which must 
be paid by our consumers, and with the most unfavorable influences upon 
our numerous railroad enterprises now in progress; while it is attended 
with no corresponding benefit to those whose capital, embarked in this 
branch of manufacture, has been totally lost. On the other hand, by this 
rise in the prices of iron, it may be expected that a new stimulus will be 
given to that branch of American labor, which may again be met by simi- 
lar consequences when it shall have become a formidable competitor with 
the foreign producer, ending* in a destructive reduction in price, and a 
redundant supply." 



1855.] TARIFF LEGISLATION. 459 

enough to satisfy the probable demands of trade, what 
then happened? "The New- York Evening Post," in a 
dry, business-like way, stated the consequence : " From 
the manufacturing districts in England the advices are, 
that, in the almost total absence of orders from this coun- 
try for wool and cotton goods, the goods making for this 
market, which are always to some extent in reliance upon 
orders, will be sent here for sale on manufacturer's 
account." And they were sent here in due time, and 
pushed off in our markets, by the agents of manufac- 
turers, at ,a lower price. This was not an altogether 
agreeable proceeding to those who had imported enough, 
as they thought, to supply the market; nor did they 
esteem more highly the foreign manufacturers who had 
thus treated them. Yet this event ought not to have 
been unexpected, for it had happened many times 
before. 

As a revenue measure, and this is all the law purported 
to be, it was very effective. Indeed, the revenue far ex- 
ceeded the general expectation and the needs of the gov- 
ernment. Secretary Walker predicted that the law would 
yield annually $23,500,000. But in the year 1847-48 
the amount was $31,757,070.96; for the year 1850-51, 
$49,017,567.92 ; and five years later the amount had ex- 
panded to $64,022,863.50, or nearly treble what was 
expected in the beginning. The revenue was excessive, 
and the expediency of lessening it was admitted by the 
opponents as well as by the friends of a protective 
policy. 1 

i In April, 1825, a writer in Niles's Register remarked, " The commerce 
of the United States, at least in respect to importations, has been increas- 



460 FINANCIAL HISTORY OF THE UNITED STATES. [1853. 

But how should the reduction be made ? Guthrie, the 
secretary of the treasury during President Pierce's admin- 
istration, recommended in his first annual report that 
the free list be extended to embrace articles which the 
year previously had yielded a revenue of 18,000,000, and 
that the remainder be arranged in two classes, — those in 
one class paying a duty of a hundred per cent ; and those 
in the other, one-quarter as much. By this re-arrangement 
and equalization, he thought the duties on those two 
classes would be reduced 14,500,000, beyond which reduc- 
tion no other was expedient, previous to the extinction of 
the public debt. In his next report the subject was dis- 
cussed more thoroughly, and a very considerable body of 
facts relating to the subject was presented. He threw a 
strong light on the question of admitting wool free of 
duty, in order to enable the American manufacturer to 
cope successfully with foreign competitors. 

Those in favor of protection, however, proposed to 

ing for more than a year past, notwithstanding the increase of our own 
manufactories, because, by the success of the last, the people are able 
to consume more. The duties secured at Boston in 1823 amounted to 
$3,847,641, and in 1824 to $4,193,112; and on the 11th instant, those bonded 
for at New York on that day were equal to $750,000. The revenue of the 
present year will be very large ; but whether it will render good or evil 
to the nation, we shall know hereafter. We have been fatally convinced 
that the public treasury may flourish while the people are verging to a 
general bankruptcy. Such is the nature of the system that we rely on, 
which must ever be the case when indirect taxation is mainly resorted to 
for the support of the government " (vol. xxviii. p. 98). At this time, orders 
were received in Philadelphia for shipping large quantities of pig-iron to 
England. The great demand for cotton goods in Mexico and South America 
caused a heavy advance in cotton, first in England, and afterward in the 
United States ; and this event led to a general speculative rise in the price 
of nearly all commodities. 



I860.] TARIFF LEGISLATION. 461 

reduce the revenues in another way. This was by fixing 
them so high as to reduce importations, and thus dimin- 
ish the revenue. They declared that a reduction of the 
duties had had the opposite effect, which the history of 
the tariff law of 1846 abundantly proved. Not so thought 
the majority. Accordingly, the duties were very generally 
reduced to the extent of twenty and twenty-five per cent 
ad valorem^ with an enlargement of the free list. 1 

The next year the duties fell below the requirements 
of the government, and the expediency of increasing the 
revenue was considered. The unexpected decrease was 
regarded the effect of temporary events : hence the law 
was not disturbed for four years. Then, just as that 
terribly awful drama, the civil war, was to begin, the du- 
ties were increased to pay the indebtedness into which the 
nation, through inexcusable misgovernment during a pe- 
riod of general prosperity, had miserably fallen. 

We have now traced the history of the revenue legis- 
lation of our government through seventy years of con- 
stitutional existence. We have sought to show what 
were the primary and also the secondary objects of this 
legislation, and how well or ill these were attained. We 
have seen that during the greater portion of that period 
the leading object of Congress was to encourage home 
manufactures. During the shorter period of fourteen 
years only, was the chief object to obtain a revenue. We 
have seen, that, however weak the faith of others in the 
efficacy of the government to aid manufacturers, theirs 
was never shaken. Moreover, having once received such 

i Act, March 3, 1857. 



462 FINANCIAL HISTORY OF THE UNITED STATES. [1860. 

aid, their faith that the government would continue to 
protect them never vanished. Did the government for 
a time reverse its policy, as in 1832, the manufacturers 
still believed that the arm of the government would be 
outstretched again in their behalf. Did the government 
forget them in 1846, they still cherished the hope that 
eventually her smiles and favors would return. 

The least the historian can say, therefore, is, that pro- 
tection, whether realized in legislation, or existing only 
in hope, at all times proved a stimulus to the manufac- 
turer, leading him to embark in new enterprises, and to 
continue, even amid discouragements and losses, having 
faith in the coming of a more prosperous day. Whether 
the government were wise to establish a policy which 
should give birth to so many gilded hopes, it is not our 
purpose to inquire. That it did so, is a fact which con- 
stantly appears in the record of these seventy years. 

When the news of the discovery of gold in Australia 
reached Europe, thousands swarmed thither, taking little 
thought of the dangers they were to encounter. The 
river wherein lay the richest deposits was surmounted on 
either side with high walls of rock, on which the sun 
shone, and whose rays, reflecting into the eyes of the 
miners, caused incurable blindness. In delving in the 
waters, too, amid an almost torrid heat, fevers were fre- 
quent and deadly ; and the vast numbers who thus per- 
ished in their mad attempt to get gold were buried not 
far away from the scene, where their graves to this day 
testify to their folly. But neither blindness, nor fever, 
nor constant death, deterred the living from following the 
bewitching pursuit. A similar effect was produced by 



i860.] TAEIFF LEGISLATION. 463 

the action of the government in granting protection to 
manufacturers. Thousands perished in the attempt to 
make their fortunes; but no failures, however great or 
awful, kept others from repeating the experiment so long 
as the government was on their side. Perhaps only ashes 
were in its hand: but the manufacturer thought other- 
wise ; and, in his eagerness to grasp the prize, he persisted 
through suffering and loss, with a will, and often with 
a desperation, that revealed his latent fortitude, and his 
sublime faith in the power and willingness of the govern- 
ment to aid and to save. However dark the night, a 
higher tariff, it was believed, would dispel the darkness. 
For this he implored with the same earnest faith that Ajax 
showed when he prayed for light on Scamander's shore. 

But was the faith of this great class, endowed for the 
most part with more than ordinary intelligence, in the 
power of the government to grant substantial aid, founded 
wholly in error? Such is the teaching of many. Gov- 
ernmental protection to manufacturers has often been 
declared to be an impossibility; and yet we find this 
class, at the end of seventy years' experience, believing 
otherwise, — indeed, having a much stronger faith in this 
doctrine than they had in the beginning. 

What the government did for manufacturers, or failed 
to do, cannot be answered with perfect exactness, because 
there were always so many causes at work in harmony 
with or against its purpose. When the government put 
forth its energies to encourage and protect, we have seen 
how they were destroyed or neutralized by the operation 
of foreign agencies. Protectionists were always encoun- 
tering surprises for which they were not prepared. What 



464 FINANCIAL HISTORY OF THE UNITED STATES. [i860. 

would have been the effect of governmental action, had 
not counter agencies supervened, we shall not attempt to 
determine : we only note the fact, that, in consequence 
of their swift appearing and strenuous resistance, the 
well-intended efforts of the government were often set at 
nought. 

In the foregoing pages, we have traced, though not so 
minutely as may be wished, the rise and progress of the 
most prominent of these agencies. Though some of them 
originated in foreign lands, yet it must be acknowledged 
that one of the most malign agencies was purely a native 
creation, — an excessive depreciated paper money, not 
resting on the solid basis of gold and silver. Whenever 
prices were borne aloft upon the Daedalion wings of paper 
money, the manufacturer never escaped loss. A plethora 
of paper money enhanced prices, and stimulated importa- 
tions; and, when settling-day finally came, the country 
was drained of its specie, and only the dregs of paper 
money were left. Every industry is the expression of a 
universal industrial life ; and, when misfortune overtakes 
one, the whole tree is affected. Like those lofty palaces 
of ancient Troy fired by the treacherous Greeks, — 

" The palace of Deiphobus ascends 
In smoky flames, and catches on his friends ; 
Ucalegon burns next." 

And the collapse of a circulating medium has always 
injured the manufacturing interest, in common with every 
other in the country. Next to the foreigner, an artifi- 
cially swollen money has been the manufacturer's worst 
enemy. It has been powerful enough to neutralize the 



I860.] TARIFF LEGISLATION. 465 

effect of every tariff, however well-intended for protec- 
tion. Pretending to be his friend, it has always proved 
to be his foe : subtle and seductive, like a serpent, in its 
movements in the beginning, nothing has been surer than 
its deadly bite in the end. 

Yet, beside alluring persons to engage in manufactures, 
the government did accomplish something for them. It 
did at times certainly somewhat check importations, and 
thus give our manufacturers better control of the market. 
Had this never been the case, foreigners would not have 
labored so zealously to secure the repeal of those laws 
which were enacted for the special benefit of the American 
manufacturer. His eagerness to have them enacted, and 
the equal eagerness of the foreign manufacturer to have 
them repealed, are two luminous facts which converge at 
the same point; namely, that both classes believed, at 
least, that such laws restricted importations, and w T ere 
therefore beneficial to one class, and injurious to the 
other. In no other way can their conduct be fairly inter- 
preted. Whether their interests were actually hostile or 
not, they believed they were ; and consequently the one 
class invoked the protection- of the government, and the 
other sought in every way to prevent it, and to overcome 
it when granted. 

The ability of the government to aid the home manu- 
facturer, and the perennial belief that it would thus act, 
have been far more stimulating to him than is imagined, 
except by those who have candidly investigated the sub- 
ject. The actual or expected course of the government 
has always been the cloudy pillar by day and the fire by 
night in the manufacturer's wilderness of trial and experi- 



466 FINANCIAL HISTORY OF THE UNITED STATES. [1860. 

ment. When most prosperous, he has ascribed his pros- 
perity to the magic influence of the tariff : when suffering 
the worst, he has always traced his adversity to the mis- 
taken course of the government. The more prolonged 
its exercise of power, the stronger has grown his belief 
that the government can aid or injure him. 



1789.] THE TONNAGE REVENUES. 467 



CHAPTER VIII. 

THE TONNAGE REVENUES. 

Three objects were clearly kept in view in enacting 
the earlier laws regulating American commerce, — to pro- 
tect and encourage the construction and employment of 
our own vessels ; to reserve the coasting-trade exclusively 
for ourselves ; and to nurture a numerous body of skilful 
and hardy seamen, not only as the necessary resource of 
our commercial marine in peace, but as the indispensable 
support of an efficient navy in war. 1 

For several years the Acts of 1789 and 1790 regulated 

1 In 1842 the committee on commerce, of which John P. Kennedy was 
chairman, made an elahorate and ahle report concerning the history and 
working of the navigation treaties negotiated between the United States 
and other countries. Referring to the earlier navigation-laws enacted by 
Congress, the committee remarked, "The system was avowedly and dis- 
tinctively protective of the interest it had in charge. It was a system of 
restrictions upon the commerce and shipping of foreign nations for the 
benefit of our own. The American ship-owner was guarded and protected 
against the competition of the whole world by discriminations in his favor, 
in the duties both on merchandise and tonnage, as well as in the port 
charges, and other expenses of his voyage ; provision was made for the 
encouragement of American seamen ; and the system was administered 
with a strict and jealous regard to the privileges which it conferred. If 
the severity of these restrictions was occasionally relaxed in favor of par- 
ticular nations, it was never without a specific equivalent; and the subject 
was left at all times at the disposal of the government, to be controlled by 
The legislation of Congress, as the occasion might demand." — No. 835 
27 Cong., second session. 



468 FINANCIAL HISTORY OF THE UNITED STATES. [1815. 

mainly the tonnage duties on foreign and American ves- 
sels. Occasionally a treaty was made with a foreign 
power, containing a clause which placed its commerce on 
the footing of the most favored nations " in regard to com- 
mercial advantages." No pledge, however, was given 
against such discriminations as might be found necessary 
to promote our own trade, further than an agreement that 
they should not be applied to the party with whom the 
negotiation was made, without also applying it to all other 
nations. The system thus established was continued until 
1815, when a new policy was adopted. 

Until the troubles arose with Great Britain, the wings 
of American commerce joyously flew over every sea. Not 
only was the entire coasting-trade secured to our country, 
but a carrying-trade with the West Indies and the British 
Possessions, the East Indies and almost every part of the 
world, suddenly grew to vast size and importance. Wars 
among European powers, and blockades, obstructed their 
channels of commerce, but favored the spread of our own. 
Our sails multiplied as theirs withdrew. During the years 
1805, 1806, and 1807, the annual quantity of foreign prod- 
uce carried in American vessels was enormous. 1 These 
transactions added vastly to our national wealth. 

When peace came, the scene was greatly changed. It 
was evident that a new and more powerful rivalry for 
commerce was likely to spring up among all maritime 
nations. Great solicitude was therefore experienced in 
this country for the adoption of such a system as would 
best secure, permanently, our commerce against the rivalry 
of other nations. 

i Pitkin's Statistical View, p. 143. 



1815.] THE TONNAGE EEVENUES. 469 

Our chief rival was Great Britain ; and, as it was be- 
lieved that we could navigate the ocean with equal advan- 
tage, a treaty was proposed establishing certain privileges 
of trade and navigation on the basis of reciprocity. The 
proposition was accepted by Great Britain, but with a 
scrupulous exclusion of her colonies and other foreign 
possessions. The treaty was signed the 3d of July, 1815, 
and was the first reciprocity treaty between the two 
nations. It was limited to four years, and was then 
extended for ten years longer, with an indefinite contin- 
uance, subject to one year's notice of the desire of the 
other party to annul it. 

The principal stipulations in this treaty were, that no 
higher or other duties or prohibitions on imports or ex- 
ports, respectively the growth, produce, or manufacture 
of the British territories in Europe on the one side, or of 
the United States on the other, should be laid by either 
party against the other, than were laid on similar articles 
which were the growth, produce, or manufacture of other 
nations ; secondly, that the vessels of each nation should 
be admitted into the ports of the other on the same terms, 
in regard to tonnage duties and charges, as their own ; and, 
thirdly, that the same duties were to be paid in the ports 
of each, on importations which were the growth, produce, 
or manufactures of the other, whether imported in British 
or American vessels. 

The treaty was regarded an experiment. The restric- 
tion of its application, on the British side, to British 
territories in Europe ; the rigid exclusion from it of any 
arrangement for trade with her colonies ; and the limita- 
tion of the privileges to commodities which were the 



470 FINANCIAL HISTORY OF THE UNITED STATES. [1830. 

growth, produce, and manufacture of the contracting par- 
ties, — show with what caution, and even distrust, this 
first departure from the old system of international com- 
mercial regulation was adopted. 

How did the treaty affect the commerce of the two na- 
tions ? On the side of Great Britain, it has been generally 
acknowledged that it was an unequivocal good. On the 
American side, opinion has been divided ; yet opposition 
was not strong enough in the United States to prevent a 
renewal of the treaty : on the other hand, no treaty of 
the kind was made with any other nation for more than 
ten years afterward. 

Trade began to decline soon after the treaty took effect, 
with the West Indies and in other quarters. A great 
cry was heard in favor of modifying the treaty ; so that 
American vessels might be permitted to take cargoes to 
the West Indies, and the British Possessions in North 
America. From these great highways of trade, Ameri- 
cans had formerly derived large profits ; and they did not 
relish the action of the government requiring them in the 
future to go elsewhere. Complaints were unceasing. Fi- 
nally, in 1830, a modification was effected called " Mc- 
Lane's arrangement." This consisted in allowing our 
vessels to take cargoes to and from the British colonial 
ports ; but the desired effect of this arrangement was at 
once destroyed by a change in the duties, whereby mer- 
chandise shipped in American vessels was subjected to a 
very much higher duty than when transported in English 
ones. 

Sabine 1 truthfully describes how our trade was affected 

1 N. Am. Rev., vol. lvii. p. 318. 



1830.] THE TONNAGE REVENUES. 471 

by this arrangement. First, it was a serious injury to our 
cotton ships. The building of vessels in New Bruns- 
wick and Nova Scotia, for sale in England, was an ex- 
tensive business ; and he had known vessels built for this 
purpose to go to a cotton-port at the South, on their 
voyage home, and obtain freights which netted a fifth or 
quarter of their entire cost. So, too, when cotton paid 
well, the ships which were built for use in the lumber- 
trade, and which were ordinarily employed in this way, 
were to be found at Savannah or New Orleans, accepting 
an eighth or a sixteenth of a penny less on the pound than 
our own vessels. Nor was this the whole of the mischief : 
since colonial ships often went in quest of cotton when the 
rates were low ; and others, by increasing the number of 
freighters, induced competition, which resulted in loss to 
all. Before the " arrangement," no such interference ex- 
isted ; because colonial vessels did not carry cotton at all, 
while those belonging to the mother-country could load 
with it if they entered a colonial port on their way to the 
United States. 

Had there been any thing to compensate for this loss, 
it might have been borne ; but there was not. The earn- 
ings of colonial vessels were taken from the earnings 
of our own ships. To be thus underbidden in our own 
ports, in the carrying of our great staple, was not a busi- 
ness which the American could cheerfully contemplate; 
nor are we surprised, therefore, to learn of Sabine ex- 
pressing the hope that this kind of reciprocity would 
speedily terminate. 

This arrangement seriously injured our coasting busi- 
ness. Nor did it secure to New England a proper share 



472 FINANCIAL HISTOEY OF THE UNITED STATES. [1849. 

of the trade in supplying the British West Indies with 
the commodities which the United States could spare, and 
which were sent to the sugar-islands of other European 
powers. The trade of the planters was a boon greatly 
desired, but since 1830 how much of it had the Northern 
States obtained? One flash of light will disclose the sit- 
uation. An American house resolved to send to the 
Island of Trinidad a brig of their own, and a colonial brig 
which they had chartered, both laden with lumber. They 
procured the material from Maine, where it was grown, 
and prepared for market. The lumber for their own ves- 
sel was, of course, laden in American waters; but that 
designed for the other was taken in raft to a neighboring 
port of New Brunswick, within sight of their counting- 
room windows. The two vessels put to sea the same day, 
and their cargoes were sold at a similar price. The earn- 
ings of each vessel, on the principles of reciprocity, ought 
to have been alike, or to have differed only in proportion 
to the size of the cargo ; but an adjustment of the 
accounts proved that the voyage under the British flag 
produced eight hundred and ninety-three dollars more 
than that conducted under the American. 

Notwithstanding this inequality in the navigation laws 
of the two nations, Great Britain did not repeal hers 
affecting the colonies until June 26, 1849, — thirty-four 
years after repealing those which concerned the direct 
trade with the United States. The new law placed the 
colonies in the same position with that occupied by Great 
Britain, with perhaps even greater freedom ; for, while 
the coasting-trade of the British Island was still exclu- 
sively reserved to British ships, the Legislature of each 



1824.] THE TONNAGE REVENUES. 473 

colony might, by addressing her Majesty, procure a per- 
mit to throw its coasting-trade open to foreigners. 1 

At last, therefore, freedom of trade was won with Great 
Britain. But the struggle had been long, costly, and dis- 
astrous to the owners of American shipping. In the 
treaties negotiated, Great Britain had unquestionably 
been the gainer. Let us now turn to the regulations 
established with other nations. 

Just before making the treaty with Great Britain in 
1815, Congress passed an Act repealing all discriminating 
tonnage and impost duties with respect to foreign vessels 
and those of the United States, so far as they concerned 
the produce and manufactures of the nations to which 
such foreign ships might belong. This repeal was to take 
effect in favor of any foreign nation which should abolish 
similar duties in favor of the United States. In 1821 
Congress declared the suspension of all discriminating 
duties on the vessels and produce of several European 
nations which had accepted the terms proffered by the 
Act of 1815, and conferred on the President authority to 
extend the several exemptions to all nations thereafter 
complying with its requirements ; and in 1828 an Act was 
passed, authorizing the President to extend the exemp- 
tion in regard to alien duties, which, by the Acts of 1815 
and 1824, were restricted to the productions of the coun- 
try to which the vessels belonged, and to the productions 
of any foreign country imported into the United States in 
the vessels of any nation which would allow a similar 
exemption in favor of the United States. 

Many of the Northern European States took advantage 

i Deni. Rev., vol. xxvi. p. 65. 



474 FINANCIAL HISTORY OF THE UNITED STATES. [1824. 

of these requirements to comply with them ; and thus 
gradually the commerce of the United States with other 
nations was placed on the same legal foundation. But 
whether there was as strict equality in other respects as 
in law, is another phase of the matter. It has been con- 
tended there was not. It has been asserted that the ves- 
sels of Northern Europe could be built and manned and 
navigated cheaper than ours, and therefore that they had 
a real advantage over those of the United States in com- 
peting for the commerce of the world. 

But if inequalities did exist in these regards, what 
caused them? Were they not the inevitable effect of 
the tariff-laws which Congress enacted? And if they 
were, then our conduct can be explained in only one of 
two or three ways : first, that it was more important to 
build up and protect our manufactures than our com- 
merce, and therefore, if we could not do both, it were 
better to let our commerce go ; but, secondly, does not 
the history of our navigation-laws show that we did 
expect to compete with foreign nations, hence our eager- 
ness to extend reciprocity? thirdly, that our government 
suffered Great Britain and other nations to get the advan- 
tage, and did nothing to prevent it; fourthly, notwith- 
standing the tariff-laws, could not the people of the 
United States have held more of their foreign commerce 
if the same interest and attention had been given to its 
preservation and extension which England displayed in 
preserving and extending hers ? 

If our negotiations with Great Britain did not bring 
forth the fruit desired, surely our trade regulations with 
Spain, and especially with her West-India colonies, were 



1834.] THE TONNAGE SEVENTIES. 475 

causes of constant irritation to those engaged in com- 
merce. From the time of opening trade with Cuba until 
1832, American vessels were obliged to pay in the ports 
of that island the enormous duty of two dollars and a 
half per ton. After that date, however, the duty was 
reduced two-fifths. But in the ports of Porto Rico the 
tonnage-duty was only one dollar, although the duties at 
both islands were levied by virtue of a royal order of 
the Spanish Government. It was supposed by Ameri- 
can shippers for a long time that this great inequality 
arose from a misconception of the order of the intend- 
ant of Cuba. The inequality had existed in practice 
ever since the opening of trade with Cuba ; and it was 
conjectured, in 1839, that the merchants of the United 
States had paid by that time, in the form of extra ton- 
nage-money, in the port of Havana, two million dollars. 
There is another fact equally singular : while a duty of 
one dollar per ton was levied on American vessels in the 
ports of Porto Rico, no higher duty than sixty-two and a 
half cents was levied on English, French, and foreign ves- 
sels. Thus our commerce in the Spanish colonial ports 
was placed in a far worse plight than that of other for- 
eign nations. 

In 1834 an American vessel of one hundred tons paid 
a hundred and sixty-seven dollars more as tonnage-duty 
when entering a Spanish port, than did a Spanish vessel of 
the same size when entering an American port. Surely 
a difference so great tended to prevent American com- 
merce from competing with Spanish vessels. 

Still worse things must be told. At one time the 
difference between the rates of duty charged on importa- 



476 FINANCIAL HISTOKY OF THE UNITED STATES. [1834. 

tions in Spanish and American vessels, on some articles, 
was from thirty-three and a third to fifty per cent in 
favor of the former. Moreover, the duties on rice and 
flour, our two principal articles of export to Cuba, had 
been increased by the Spanish authorities; while the 
duty imposed by our government on coffee and molasses, 
the two principal commodities of the island, had. been 
greatly reduced. Coffee, indeed, had been admitted for 
some years duty free. The difference in the export du- 
ties at Havana, in favor of Spanish vessels, was two per 
cent ; foreign vessels having to pay four and a half per 
cent ad valorem, while Spanish vessels paid only two and 
a half per cent ad valorem. 

To get square with the Spanish Government, Congress, 
after delaying until 1832, declared that Spanish vessels 
coming from the colonies of Spain should pay in the 
ports of the United States the same rate of duty on ton- 
nage as American vessels were required to pay in Spanish 
colonial ports. The secretary of the treasury was author- 
ized to fix the amount, and issue regulations for collect- 
ing it. As this law was not deemed entirely adequate, 
two years afterward the committee of commerce intro- 
duced a bill authorizing " the secretary of the treasury to 
collect such additional tonnage upon Spanish vessels en- 
tering the ports of the United States from Cuba and 
Porto Rico as shall be equivalent to the discriminating 
duty that would have been imposed upon the cargoes of 
such vessels, respectively, if the same had been exported 
from Havana in American bottoms ; and also upon Span- 
ish vessels clearing out from the ports of the United 
States such additional tonnage duty as would be equiva- 



1834.] THE TONNAGE REVENUES. 477 

lent to the discriminating duty payable upon their car- 
goes, respectively, if imported into Havana in American 
bottoms." A law was passed in conformity with this 
recommendation, which proved effective in putting all 
engaged in commercial intercourse between the two coun- 
tries on the same basis. 



478 FINANCIAL HISTORY OF THE UNITED STATES. [1799. 



CHAPTER IX. 

WAREHOUSING AND DRAWBACKS. 

Ten years had gone under the new constitution before 
any method was adopted whereby importations could be 
stored previous to the payment of duties on them. In 
1799, however, an Act was passed allowing fifteen days 
to vessels arriving from foreign ports to discharge their 
cargo. Any goods remaining on board after that time, 
beside those which were reported for entry in another 
collection district or foreign port, the collector was re- 
quired to take and store. The same law also provided, 
that, after a notice of five days to the collector, any goods 
might be taken and stored with the consent of. the owner 
or consignee, or master of the vessel. 

Importers were not required to pay cash, unless the 
duties were less than fifty dollars, until 1832 ; nor even 
then whenever they exceeded two hundred dollars. The 
importer could give his bond payable at periods varying 
from three to twelve months, determined by the nature 
of the merchandise, and the country whence it was im- 
ported. 

This was the system established by the law of 1799, 
the chief characteristics of which still exist. An excep- 
tion, though, was made with respect to teas. These could 
be put in such stores as were mutually designated by the 



1799.] WAREHOUSING AND DRAWBACKS. 479 

importer and inspector of the revenue. In such cases, 
bonds without sureties were taken for double the amount 
of the duties, payable in two years. Collectors were also 
authorized to receive goods on deposit, to secure the pay- 
ment of duties as a substitute for sureties on bonds. If 
the importer, therefore, did not wish to give sureties, he 
could give his own bond, and take his merchandise, leav- 
ing with the collector a sufficient quantity to insure the 
payment of duties on the whole. 

Under the system of credits thus established, there was 
no strong inducement for storing goods. Such as were 
found on board of vessels, after the time specified for un- 
loading, usually possessed no great value. The five-days' 
notice provision, previously described, was adopted for the 
benefit of vessels engaged in trade, to enable them to 
commence their return-voyage without delay, and espe- 
cially for the benefit of packets. They would put in 
what was called a five-days' order for the purpose of un- 
loading, and sending their cargoes to the public stores, 
without waiting for them to be appraised, weighed, meas- 
ured, and gauged. 

Goods thus deposited could remain in store nine months, 
unless the duties chargeable on them became due in a 
shorter period : in that case, a sufficient quantity could be 
sold to discharge the duties on the whole. The residue 
was sold at the end of nine months under proper regu- 
lations in regard to advertising, their appraisal by mer- 
chants, and other particulars essential to insure a fair sale. 
The proceeds, after deducting the duties and charges, 
were put into the treasury, and afterward given to the 
owner as soon as he proved his right to receive the same. 



480 FINANCIAL HISTORY OF THE UNITED STATES. [1843. 

Such was the earlier warehouse system, which was 
quite satisfactory so long as the government allowed an 
ample term of credits on imports. But when the time for 
paying duties was narrowed, especially after 1832, import- 
ers desired greater privileges to store their goods before 
discharging the claim of the government thereon. Ac- 
cordingly, the Committee of Ways and Means reported, in 
1834, that importers ought to have the privilege of pla- 
cing their merchandise of every description in the custody 
of the customs officials for twelve months, and to with- 
draw it when demanded for consumption : in other words, 
they recommended the adoption of the English system 
of warehousing, which had been copied from the Dutch. 
They further declared, that importers ought to be allowed 
a credit of three and six months for the amount of the 
duty from the date of withdrawal ; but Congress did not 
heed their recommendations. 1 

In 1842 a radical change was made in the payment of 
duties. The law declared, that, in all cases of failure or 
neglect to pay duties on completing the entry, the goods 
should be deposited by the collector in the public store. 
If the duties were not paid in sixty days, or ninety days 
if imported beyond the Cape of Good Hope, the goods, 
or a sufficient amount to pay the duties, must be sold at 
auction, after an appraisement by the general appraisers. 
Moreover, under the old system, interest was not exacted 
during the period for which credit was given : under the 
new system, interest was charged from the time the duties 
accrued until they were paid. 

From this change several noteworthy consequences 

1 No. 195, 24 Cong., second session. 



1843.] WAREHOUSING AND DRAWBACKS. 481 

followed. The effect of forbearing to demand duties 
when goods were entered had been equivalent to a cash 
capital to the merchant for a similar amount during the 
period of forbearance. " It was," says Senator Dix, " un- 
questionably a valuable mercantile facility for those who 
had the benefit of it, and the discretion to employ it 
judiciously ; but it had its public inconveniences, and 
it was very properly abolished." It was foretold, when 
the change was introduced, that great hardship would 
follow, unless importers were permitted to store their 
goods for a season, and relieved from paying duties dur- 
ing the interval. But the period for storing them was 
shortened, instead of lengthened. The change, too, oc- 
curred simultaneously with a heavy advance in the rate 
of duties. 

"It is a singular fact," said the same authority, 1 "and 
one which is not easily to be accounted for on any prin- 
ciple of public utility and convenience," that the changes 
in the tariff should have occurred at the very time when 
" this extraordinary and violent transition took place 
from credits to cash payments." But it is not difficult 
to understand the cause of these changes. They were 
truthfully stated by the committee on commerce in 1843, 
when considering the expediency of establishing the 
warehouse system. "There seems to be a general con- 
sent of opinion at this day," the committee say, "that 
one of the most mischievous agents which have been at 
work in producing the embarrassments under which trade 
has struggled during the last five or six years, has been 
the tendency to excessive importation, produced in no 

1 Speeches and Addresses, vol. i. p. 112. 



482 FINANCIAL HISTORY OF THE UNITED STATES. [1843. 

small degree by the stimulus administered to it through 
the laws for regulating the introduction of foreign goods, 
especially in the large list of importations which were 
admitted free of duty; that this tendency was signally 
aggravated by the vast amount of importation on foreign 
account, and the transfer of the business of foreign com- 
merce from the American to the foreign merchant. It is 
a prevailing impression, which seems to be well sup- 
ported by facts, that the American market has been 
greatly disturbed by the influx of large amounts of for- 
eign merchandise thrown into it, chiefly from England, 
France, and Germany, upon foreign consignment, under 
circumstances requiring early sales at auction, without 
regard to any fixed rate of profit (even in view of certain 
loss), for the sake of speedy remittance of the proceeds ; 
that these consignments, being often the surplus stocks of 
the nations from which they came, were made without 
calculation of gain, and were sent to this country only 
because it is deemed more to the interest of the nation 
producing a surplus to dispose of it in a foreign market 
than its own." To prevent the recurrence of this evil, 
two remedies had been proposed and adopted at the pre- 
vious session of Congress, — a diminution of the list of 
goods admitted without payment of a duty, and the pay- 
ment of duties in cash. The committee had faith in these 
remedies. Their only apprehension was, that they might 
prove a greater check to importations than was desirable. 1 
But though ineffectual in checking importations, these 
measures did have the unwelcome effect of transferring 
the business of importing to persons who possessed large 
i No. 103, 27 Cong., third session. 



1799.] WAREHOUSING AND DRAWBACKS. 483 

capital, and smaller importers were obliged to retire. The 
dissatisfaction of the latter class was very great. Nor did 
it cease, until Congress established the warehouse system, 
the leading features of which were, that goods could be 
imported and put into warehouses, and kept there until 
needed for consumption, when they could be withdrawn, 
and the duties paid as though they had never been ware- 
housed ; or they could be withdrawn, and exported to 
other countries, without cost, save that of storage and 
incidental charges. Such a system had long been estab- 
lished in Great Britain and in other countries. Though 
several attempts were made to pull it up, the plant soon 
grew into a tree, and long since was strong enough to 
defy successfully every storm. 1 

The repayment of duties was allowed, by the Act of 1799, 
on all goods exported within twelve months to any foreign 
port except the ports of any foreign state immediately 
adjoining the United States. The purpose of this Act was 
to increase our navigation. It was a wise measure ; for 
" otherwise the tax," as Livingston of Louisiana said, 
" instead of falling on the consumer, would have rested 
on the importing-merchant, who, on re-exporting the mer- 
chandise, must have done so with the load of the duty he 
had paid." 2 Indeed, a different policy would have ban- 
ished all the transit trade from our harbors, confined our 
importations strictly to the amount needed for consump- 
tion, and forced our merchants, whenever they carried the 
produce of one foreign nation to the ports of another, to go 
abroad to make up their cargoes. The drawback system 

1 Private bonded warehouses were established March 28, 1854. 

2 Cong. Debates, vol. i. pp. 560, 564. 



484 FINANCIAL HISTORY OF THE UNITED STATES. [1834. 

realized all the advantages which were expected to accrue 
from its establishment, — it greatly increased the carrying- 
trade, gave scope to the enterprise of our merchants, ena- 
bled them, by assorting their cargoes at home, to compete 
in foreign markets with the merchants of the countries 
from which the commodities composing such cargoes were 
brought. 

In 1816 another advance was made in allowing draw- 
backs on exported merchandise manufactured from im- 
ported materials which had been subjected to a duty. 
Previously there had been a drawback on all refined 
sugar exported to other countries. A bounty of twenty 
cents a barrel on pickled fish exported had been given, 
which was supposed to be equivalent to the duty on the 
salt used. This was essentially the same thing as a draw- 
back. The Act of 1816 covered drawbacks on refined 
sugar and spirits. On the latter a drawback of six cents 
a gallon was allowed, and ten cents a gallon if made 
from molasses of foreign production. On sugar, in addi- 
tion to the drawback previously allowed, there was an 
increase of four cents a pound if refined from an imported 
product. The same principle was afterward extended to 
plain silk cloths imported which were colored, printed, 
stained, dyed, stamped, or painted here, and to hemp im- 
ported which was afterward manufactured into cordage. 1 

Some of these enactments were grossly violated, espe- 

1 Act, May 22, 1824, 18 Cong., first session, chap. 136. On many occa- 
sions Congress passed Acts allowing importers the benefit of drawback in 
cases where they had omitted, unintentionally, to comply with all the for- 
malities of the law; like going to the custom-house and taking oath, and 
giving bond within the ten days required by law. A large number of cases 
is given in a report made in 1844, No. 489, 28 Cong., first session. 



1844.] WAREHOUSING AND DRAWBACKS. 485 

cially the drawback allowed on brandy. Casks containing 
imported liquor were filled with liquor of inferior quality, 
and then exported. In a single city thirty or forty of 
such empty casks, accompanied by the certificates of the 
importers, were sold daily to the distillers, who filled them 
with a very different kind of liquor, and exported them. 

This drawback privilege did not extend to every port. 
Nor could merchandise carried coastwise in any other 
way than by sea get a drawback; but after a time an 
innovation was made in this regard. Merchandise could 
be carried between certain places, partly by land and 
partly by water, and yet be exported with the privilege of 
drawback. An attempt was made to apply the principle 
everywhere, but failed. The favored ports were opposed 
to widening the operation of the law. This opposition was 
based on purely selfish considerations. Even as late as 
1836 there were flagrant defects and inequalities existing. 1 

These difficulties were finally overcome; and, last of 
all, Congress permitted the sending of Canadian goods 
through the country, to foreign countries, on the same 
conditions as were prescribed for the owners of other 
goods. Slowly was this change effected. It was a notable 
advance, and ought to have been made long before. 
Congress has always been a languid reformer. 

i No. 399, 28 Cong., first session. 



486 FINANCIAL HISTORY OF THE UNITED STATES. [1799. 



CHAPTER X. 

COLLECTION OF DUTIES. 

The principal law by which duties have been col- 
lected for more than eighty years, was passed in 1799. 
But it was impossible to legislate for all contingencies. 
As these occurred, amendments were sometimes passed, 
though too often Congress took no note of them. At 
almost every session, however, amendments were made, 
until they numbered over four hundred. Then Congress 
undertook the work of codification, — a work as difficult 
to perform as it was necessary both to the government and 
to the importer. The secretary of the treasury was au- 
thorized to prepare such a code. He performed the task 
with commendable thoroughness. Notwithstanding a fa- 
vorable report from a committee of Congress, the code was 
not adopted. Again and again was the attempt made, 
only to fail, until the revision of the entire body of stat- 
utes in 1874. 1 

One of the earliest questions raised in collecting duties 
related to , the application of the ad valorem principle. 
Hamilton was opposed to applying it, because there would 
be stronger temptations to defraud the revenue. In 1816 
the ad valorem principle was extended, and still further 

1 See House Eeport on Need of Codification, March 3, 1855, No. H5, 33 
Cong., second session. 



1832.] COLLECTION OF DUTIES. 487 

in 1824; but not long afterward evil fruits began to appear. 
All universally admit the beauty and fairness of the prin- 
ciple, if importers will act honestly in telling the govern- 
ment of the cost of their importations. Unhappily, the 
temptation to do otherwise in many cases cannot be re- 
sisted. Whenever applied, frauds have followed. Doubt- 
less, under any system of collecting a revenue, frauds are 
committed; but they are not so easily committed when 
specific duties are levied as when duties are assessed on 
the value of importations. Such was the well-known 
result of the American experiment in 1832 ; a yet at that 
time, in full blaze of the light of the past, a wider sweep 
than ever was given to the principle. 

For four years after 1842 the application of the prin- 

1 " The foreign manufacturer consigns his goods to the agents whom he 
sends here, at a price thirty-three per cent less than he sells them to the 
American merchant; and, if questioned on this invoice hy our officers, his 
reply is, that he charges our merchants a profit, and that his invoice is the 
cost of the manufacture of the article. 

" A gentleman in the city of Boston who formerly imported six hundred 
dozen calf and morocco skins has already "been driven from the trade hy 
the advantage which the foreign agent possesses over him in introducing 
goods at less duties. 

" Again: the French manufacturer wishes to send an invoice of hoots 
to this country. He has them packed in cases, sends them to some village a 
few miles from Paris, and at a few hours' notice sells them at auction. His 
agent is the only bidder: he buys them at a price which saves him seventy- 
five per cent of the duty he would have paid on the true invoice. Still his 
invoice is true, sworn to hy the auctioneer, and our laws can charge him 
with no wrong. 

"As ad valorem duties are upon cost and charges, the foreign importer 
has another advantage, as he can get his goods clear of port ten per cent 
cheaper than our merchants, giving him an advantage of ten per cent, and 
the duty ou it hesides." — Report of Amasa Walker and others on Leather 
Manufactures, 1842, 62 Niles, p. 68. 



488 FINANCIAL HISTORY OF THE UNITED STATES. [1830. 

ciple was somewhat checked; but when Walker became 
secretary of the treasury, in 1845, he advocated more 
strongly than ever a return to it. The duties by his 
recommendation were made entirely ad valorem, and they 
continued to be until 1861. Then specific duties were 
restored in many cases ; though in some a mixed or double 
duty, partly specific and partly ad valorem, was applied. 

The frauds perpetrated in consequence of adopting the 
ad valorem principle were so great, that many importers, 
ere long, were driven from the business. To prevent 
these, the plan of a "home valuation" on all imports 
was adopted in 1832. Ingham strongly recommended 
this. 1 He declared, that so long as the current value, 
or rather the invoice price, of goods in the foreign market, 
was made the basis on which duties were laid, peculiar 
advantages would be given to those who had the best 
opportunities for purchasing or making up invoices at 
rates below the current value. Not only would they 
purchase at lower prices, but their duties would conse- 
quently be lower. Foreigners, therefore, possessed this 
double advantage over Americans. The inevitable effect 
of the system was to throw an extensive branch of the 
importing business into the hands of foreign merchants,— 
who could always lay in their goods on better terms than 
American houses having no connection abroad, — and 
into the hands of those, who, whether foreign or Ameri- 
can, were the least scrupulous of the means of gain. A 
home valuation, he declared, would not vary the principle 
on which import duties were presumed to be laid, and 
would be simply an extension of the custom which had 

1 Annual Treas. Report, December, 1830. 



1839.] COLLECTION OF DUTIES. 489 

long prevailed among the most commercial nations of 
Europe. Moreover, he strongly believed in the practica- 
bility of such a valuation. 1 This mode of valuing imports 
subject to an ad valorem duty was incorporated into the 
tariff of 1832, but was not to be employed for ten years. 
Before that time came, opposition to trying the experi- 
ment was so strong, that Congress repealed the law. 
During President Pierce's administration it was proposed 
to apply the idea, but Guthrie, the secretary of the treas- 
ury, was opposed to it, and furnished cogent reasons why 
the experiment should not be tried. Guthrie's views pre- 
vailed ; and since his day no one has had the hardihood to 
champion the idea. 2 

It was early discovered that the collection laws were 
very unequal in their operation. Thus, only a few ports 
were open for the discharge of goods which were brought 
from beyond the Cape of Good Hope. In 1839 Massa- 

1 " Ordinary experience, skill, and attention, on the part of the proper 
officers, will enable them to determine with all necessary accuracy the cur- 
rent value in their own vicinity; and the mass of information which might 
readily be collected to correct error, if any should be made by them, could 
not fail to secure a just and equal appraisement. This being accomplished, 
the government will receive the whole duty paid by the consumer, and no 
more ; the price of the goods will be more steady ; merchants will be ex- 
posed to less hazard ; and the opportunity of fair competition between the 
American and foreign merchant, so far as it can be effected by the action 
of the government, will be restored to that equality which a liberal policy 
cannot deny to foreigners, and which a wise government will always desire 
to secure to its own citizens." 

2 In 1841, while the tariff was undergoing re-adjustment, Forward ex- 
pressed his strong conviction of the impracticability of a home valuation; 
and so did his successors whenever discussing the subject. Guthrie han- 
dled the subject very thoroughly in a letter addressed to the Speaker of the 
House, written in June, 1856. See Finance Report for year ending June, 
1856, p. 653. 



490 FINANCIAL HISTORY OF THE UNITED STATES. [1838. 

chusetts had nine ports of entry, of which eight were open 
for the discharge of goods coming from every quarter of 
the world. On the coast of Maine were twelve ports ; yet 
in only four could goods purchased east of the Cape of 
Good Hope be discharged. The Constitution had declared 
that no preference should be given, by any regulation of 
commerce or revenue, to the ports of one State over those 
of another. In each Atlantic State there was always one 
port open for the commerce of the world, without restric- 
tion ; but why were not all ? In 1838 Congress attempted 
to give similar privileges to all ports in importing goods. 
The committee who reported on the subject declared 
there was no justice or propriety in retaining the distinc- 
tion, yet many years elapsed before equality was granted. 
Of course, the ports enjoying the largest liberty, and 
getting the most trade, fought against the extension of 
the privilege ; but there was no just reason whatever for 
permitting the inequality after its discovery. 1 

Very serious consequences, also, have arisen from a 
wrong or imperfect interpretation of our revenue-laws. 
The secretary of the treasury prescribes how they shall 
be executed, and consequently is the first interpreter of 
them ; but an appeal lies from his decision to the Federal 
courts, who are the final interpreters. How often have 
embarrassments and losses occurred in consequence of 
varying decisions at different ports on the same article of 
merchandise ! At one time a deduction of five per cent 
on the invoices of broadcloths for measurement was an 
established usage of trade. This usage was mentioned in 
an instruction issued by the treasury department 2 to the 

1 House Report No. 304, 25 Cong., second session. 2 Sept. 9, 1828. 



1829.] COLLECTION OF DUTIES. 491 

collectors of the various ports. But the instruction was 
construed in two ways. At some custom-houses the de- 
duction was made from the measurement ; at others, from 
the cost. In consequence of this dissimilar application 
of the instruction, different rates of duties were imposed. 
Then the treasury department issued a second instruc- 
tion, announcing that the five-per-cent reduction was on 
the " measurement," and not on the price. A higher duty, 
therefore, was collected, than would have been if the de- 
duction had been on the price or cost. Importers who had 
ordered goods which had not arrived previous to issuing 
the second instruction were obliged to suffer; nor could 
they get any relief. 1 

In consequence of varying interpretations of the law, 
and of changing the instructions of the treasury depart- 
ment, unequal rates of duties not infrequently have been 
collected on similar articles at different ports. Whenever 
an importer has paid the duty demanded, and has obtained 
his goods and a clearance from the custom-house, by no 
subsequent instruction from the secretary of the treasury 
could he be compelled to pay more ; but, if he had paid 
an excess, that could be refunded. Very many vexations 
and losses have arisen from this cause. 

Not infrequently the officer of the government has 
doubted how to assess a duty. One of the most trouble- 
some cases of that kind in the history of the treasury 
department related to the assessment of duties on so 
ordinary a substance as cotton bagging. The opinions of 
different appraisers and collectors were obtained by the 
secretary of the treasury concerning the true mode of 

1 Annual Report of Sec. of Treasury, December, 1829, pp. 11, 12. 



492 FINANCIAL HISTORY OF THE UNITED STATES. [1833. 

assessing it. 1 To the ordinary reader it might seem that 
there could be but little occasion for disputings about such 
a matter ; but there truly was, and the different modes of 
assessing the duties yielded very different and very im- 
portant results. 

One of the most successful frauds ever practised related 
to the importation of sugar. Molasses and sirup bore a 
lighter duty than sugar ; and the fraud consisted in boil- 
ing cane-juice nearly to the point of crystallization, or 
else of dissolving clayed sugar, white or brown, in steam 
or boiling water, and holding in solution the largest possi- 
ble quantity of sugar. This fraud was not only injurious 
to the government, but also to the honest importer. 
When the knowledge of this fraud became known to an 
importing-house in New York, they wrote to the secretary 
of the treasury, " If this technical difference in the mode 
of preparation should be recognized as conclusive, in ref- 
erence to the new article, an early notice to that effect is 
earnestly solicited, that we may, by the introduction of a 
similar article, be enabled to withstand the ruinous com- 
petition to which we, in common with the rest, shall oth- 
erwise be inevitably subjected." Thus awakened to their 
duty, the officers of the government finally stopped the 
perpetration of so base and injurious a fraud. 

The secretary of the treasury has been required to 
interpret not only the laws, but also the treaties, relating 
to the revenues. In interpreting the latter, some very 
difficult questions have arisen. Sometimes the meaning 
of the treaty has been clear enough to persons generally, 

1 See Senate Doc. No. 104, 22 Cong., first session, especially Affidavit of 
Importers, p. 11. 



1843.] COLLECTION OF DUTIES. 493 

though not to the secretary. One of the most note- 
worthy cases of this kind was Secretary Bibb's coffee de- 
cision. He decided that coffee brought in Netherland 
vessels could be admitted duty free, and ordered all duties 
collected on it to be refunded ; while that transported 
in American vessels must pay a duty of twenty per cent. 
The decision caused much irritation, nay, disgust. An 
intelligent foreigner, writing from Rotterdam about the 
decision, remarks, " You see that our Dutchmen do not 
believe that such a liberality in favor of their ships, as is 
written about from your side, can be meant in earnest, 
as they ship the coffee by American vessels: it would 
indeed be a masterpiece of diplomacy, on the part of the 
Dutch negotiator at Washington, if the coffee were free 
in Dutch vessels, and not in your own. But it is looking, 
indeed, too absurd, or altogether impossible ; and we ex- 
pect with you, that, if the duty is returned on importa- 
tions by Dutch vessels, your government will not refuse 
this advantage to their own flag." 1 Though a lawyer, 
Bibb's age and tardy study of finance may be pleaded in 
excuse for making such a decision. Congress, it is true, 
reversed it ; but much harm had been done, and the pride 
of the country was lowered by the absurd and costly action 
of the secretary of the treasury. 2 The duties collected 
on coffee imported in American vessels were refunded by 

i 7 Niles, pp. 39, 40, 144. 

2 It is worthy of remark, that, notwithstanding the importance of the 
secretary's action by which he annulled a provision in the tariff-Act of 
1842, and directed a large sum to he refunded to the importers, he said 
nothing about these things in his annual report. Two reports were made 
on this subject which can be profitably studied, — No. 534, 28 Cong., first 
session; and No. 188, 28 Cong., second session. 



494 FINANCIAL HISTOEY OF THE UNITED STATES. [1843. 

order of Congress, and thus the revenue from this source 
was wholly lost. 1 

Bad enough was this case, but not the worst. For 
many years certain duties had been levied on Madeira 
wines. Bibb found a clause in the treaty with Portugal 
which he declared admitted of a different interpretation 
from that given to it by his predecessors ; and accordingly 
he ordered a reduction of three-fourths of the duty, and 
that the excess collected should be refunded. The sum 
was very large, and the inquiry sprang up, who ought to 
receive it. Says Niles, 2 " The theory of some people is, 
that the consumer pays the duty. Our merchants have 
bought their wines with the duty on, and sold them to 
the people of this country at prices accordingly. The 
importer, it is fair to presume, made a fair profit; and 
now, after the duty is thus levied, collected, and paid by 
our people, and the wine all drank up, the people of this 
country are by this decision called upon to pay three- 
fourths as much more out of their treasury to refund 
these said duties. Is it not a hard case? The money 
goes where ? Into the pocket of the importer, who has 
already had his profit." 

In paying duties, importers were permitted for half a 
century to give their notes, whenever the sum exceeded 
fifty dollars ; but the law was often a puzzle in regard to 
the length of time for which they could be given on 
various kinds of imports. On those from the West In- 
dies, except salt, or from other places north of the equa- 

1 Aug. 3, 1846, 29 Cong., first session, chap. 75. The duties refunded 
included the period between Aug. 30, 1842, and Sept. 11, 1845. 

2 Vol. lxvii. p. 39. 



1S3S.] COLLECTION OF DUTIES. 495 

tor, and along the eastern shore of America or its adjacent 
seas and other waters, the notes were payable, one-half in 
six months, and one-half in nine months; on salt, nine 
months ; on wines, twelve months ; on all goods imported 
from Europe, except wines, salt, and teas, one-third in 
eight months, one-third in ten months, and one-third in 
twelve months. On teas a longer credit was given, which 
caused a heavy loss to the revenue. Experience proved, 
too, that long credits stimulated speculation, which was 
not less ruinous to the speculators themselves than inju- 
rious to the government. 

In 1820 an attempt was made to shorten credits on 
importations, but the movement was strongly resisted. 
It was regarded as " hostile to the general interests of the 
commercial community, and especially of those young 
merchants who were beginning their career with more 
enterprise than capital." Its effect, if not its object, was 
declared to be " to curtail the importation of foreign man- 
ufactures by diminishing the facility of importing them." 1 

When Ingham was secretary of the treasury, he recom- 
mended that the term of six, nine, and twelve months be 
adopted as a fair average of existing credits. In 1832 
the law was so changed, that the duties on wool, woollens, 
and all merchandise of which wool formed a part, were 
required to be paid in cash without discount, or, at the 
option of the importer, be stored under bond at his risk, 
subject to the payment of the customary storage and 
charges, and to the payment of interest from the date of 
importation. On all other merchandise, the duty, if not 
exceeding two hundred dollars, must be paid in cash; if 

1 See Austin's Article, N. Am. Rev., vol. xii. p. 60. 



496 FINANCIAL HISTORY OF THE UNITED STATES. [1837. 

exceeding that figure, be paid or secured in the manner 
formerly required, — one-half payable in three months, 
and the balance in six. The law also provided, that, when 
any instalment of duties became due, enough merchan- 
dise should be sold at public auction to pay them, if this 
was not done by the importer. 

These changes were not easily effected. Importers 
were opposed to them, and sought to modify them. They 
preferred the old system of getting credit from the gov- 
ernment rather than from individuals. Certainly the old 
way was easier for them. But an event occurred which 
blasted forever all hope of change. When Ingham was 
at the head of the treasury department, he strongly rec- 
ommended that importers should be required to substi- 
tute .other persons as principals on bonds given to secure 
duties, whenever their own names were affixed to similar 
bonds due and unpaid. Congress did not heed this wise 
recommendation until the financial crash of 1837 had 
wrecked the importers, and prevented them from paying 
their dues to the government. Suddenly the government 
found itself on the edge of bankruptcy. It could not do 
otherwise than extend the time to importers to pay their 
debts ; 1 yet the government was in sore need of money. 
This experience taught the government the need of short- 
ening the term of credit given to importers ; and finally 
the credit system was totally abolished. Thereafter im- 
porters were required to pay cash on receiving their 
goods. 

The losses, sustained by the government in this way, 

1 Woodbury's Annual Report, December, 1837. House Report No. 195, 
24 Cong., second session. 



1830.] COLLECTION OF DUTIES. 497 

did not include the duties remitted by Congress on goods 
lost chiefly by fire. For many years this could be done 
only by special legislation ; but in 1854 an Act was passed 
giving authority to the secretary of the treasury to remit 
them in such cases. But there were many other instances, 
beside loss by fire, in which duties were remitted. The 
law requiring a duty to be assessed on the article of best 
quality in the package was not enforced in those cases 
where goods were detained by storms, and were deterio- 
rated in consequence of them. 

Applications for remission from one cause and another 
have been exceedingly numerous. Many of them have 
sprung from the operation of changes in the law fixing 
the rate of duty. The Act of May 29, 1830, reducing 
the duties on molasses, tea, coffee, and cocoa, produced 
some unexpected and embarrassing consequences. The 
law was to take effect the 30th of September following. 
Some importers at Providence began a voyage before the 
enactment of the law ; and the vessel arrived home a few 
days prior to the 30th of September. They knew that 
the law had been enacted reducing the duty from ten to 
five cents a gallon on molasses; but they had no alter- 
native of keeping the molasses in the vessel, or storing it, 
prior to payment of the duty. It was necessary for them 
to pay the duty; while the importers of tea, coffee, and 
cocoa, were allowed to store their importations whenever 
cargoes arrived between the 20th of May and the time 
when the law was to take effect. Evidently there was no 
reason for subjecting the importers of molasses to such 
peculiar treatment. Congress very properly remitted the 
excess of duties which had been paid. 



498 FINANCIAL HISTORY OF THE UNITED STATES. [1843. 

When the tariff of 1828 was passed, importers wished 
to have the difference between the old and new rates of 
duties refunded on all goods received after the passage of 
the Act, which had been ordered previously. The answer 
made to their claim was, that the goods had risen in the 
market enough to pay the increase in the duty. This the 
importers denied : on the other hand, they declared, that, 
notwithstanding the increase of duty, most of the mer- 
chandise imported had fetched lower prices than under 
the former tariff. Said Samuel D. Bradford, one of the 
prominent petitioners for relief, "Nothing can be more 
certain than that the extra duty laid in 1828 came, nearly 
all of it, out of the pockets of the importers." 2 

The compromise tariff Act of 1833 caused a singular 
state of uncertainty in the minds of the President and 
his cabinet with respect to what duties, if any, should be 
collected after 1842 ; and different opinions were enter- 
tained by the attorney-general and the secretary of the 
treasury. The matter was referred to Congress ; and the 
judiciary committee made a lengthy report, in which they 
declared, that, by the Act of 1833, all duties after the 
30th of June, 1842, must be assessed, if at all, on the prin- 
ciple of a home valuation, and as they could not thus be 
assessed, because no legal regulations existed, they could 
not be assessed at all. This interpretation, if correct and 
followed, would have put the government in a sorry 
plight. The difficulty was remedied by the enactment 
of the tariff-law of 1842. 2 

Cases were constantly occurring, of hardship, loss, and 

1 Ex. Doc. No. 13, 22 Cong., second session. 

2 House Keport No. 943, 27 Cong., second session. 



1849.] COLLECTION OF DUTIES. 499 

suffering, from constant changes in the laws establishing 
duties, and from the varying constructions given to them. 
The secretaries usually have been prompt to decide, and 
have decided wisely; but the tariff-laws, from an early 
period, have been so complicated, and the persons chosen 
to execute them have been changed so often, that on rare 
occasions only have they displayed very much efficiency. 
From time to time a fresh set of instructions has been 
issued by the treasury department ; but, during the greater 
part of our national history, the collection of the revenues 
has been costly, and in many ways imperfect. 

In 1849 there was important legislation concerning the 
money received from duties. Congress enacted that it 
should be immediately paid into the treasury, without 
abatement or reduction. 1 

The expense of collecting the revenue has differed much 
at various times and places. The chief home of com- 
plaint has been at New York, where the larger portion of 
the revenues has been collected. The loosest and most 
corrupt management of the custom-house was in the 
days of Hoyt and Swartwout, by whom the government 
sustained a direct loss of more than a million dollars. A 
very elaborate investigation of their management of the 
custom-house developed one of the most humiliating chap- 
ters in the history of our government. Every depart- 
ment of the custom-house was saturated with corruption. 
All the supplies purchased, all the repairs made, all the 
goods sold in execution of the laws, collusion with 
importers, collusion with home manufacturers, — every 
method which a nefarious ingenuity could devise was 

1 Act, March 3, 30 Cong., second session, chap. 110. 



500 FINANCIAL HISTORY OF THE UNITED STATES. [1829. 

practised to rob the government, to rob the importer, to 
rob every one who came within the baneful shadow of this 
devoted body of official criminals. 1 

In the beginning, the custom-house officials, including 
all the minor officers, were paid in fees established by 
Congress. 2 Subsequently several changes were made in 
the modes of compensation. It was seen that the fee- 
system operated unequally, and not in proportion to 
services rendered. Indeed, this inequality was so great, 
that in some cases an inspector received more than twice 
as much as the collector of the same district. Moreover, 
the fees were computed in various ways at different offices, 
and were a constant source of embarrassment in the trans- 
action of business. Ingham recommended 3 the abolition 
of this mode of payment, and the substitution of salaries , 
retaining, however, the fees on manifests, clearances, 
entries, and permits, and also in that part of the service 
where their paj^ment might be deemed essential to the 
security of the revenue. From these recommendations 
grew two Acts, which fixed the salaries of assistant ap- 
praisers ; while clerks, and all other persons employed in 
the appraisers' office, were to be appointed by the prin- 
cipal appraisers, and their number and compensation de- 
termined by the secretary of the treasury. The duties 
having declined under the tariff-Act of 1832, the com- 

1 Poindexter's Report, No. 669, 27 Cong., second session. 

' 2 A practice for a long time prevailed of allowing the compensation of 
clerks employed in the custom-houses to he paid out of the revenue, when 
the fees were not deemed adequate to obtain the necessary number; but 
when Spencer was secretary of the treasury he abolished the practice. — 
Annual Report, December, 1843. 

3 Annual Treas. Report, December, 1829. 



1841.] COLLECTION OF DUTIES. 501 

pensation shrank to a small figure, and it was increased. 
The law had provided that all the fees accruing to any 
officer, in addition to his salary, beyond a certain sum, 
should go to the government. No collector could retain, 
in fees, over $4,000, a naval officer #3,000, and a surveyor 
$2,500. 1 But in 1841 the sums were somewhat increased, 
and made permanent ; the law declaring " that no col- 
lector should, on any pretence whatsoever, thereafter 
receive, hold, or retain for himself, in the aggregate, more 
than $6,000 per year, including all commissions for duties, 
and all fees for storage, emoluments, or any other com- 
missions or salaries, which are now allowed and limited 
by law." The salary of the naval officer was fixed at 
$5,000, and that of the surveyor at $4,500. 

Long ago was shown the uselessness of the naval office. 
The number has been somewhat reduced, but there is no 
reason why one should be retained at any port. The 
office is simply revisory ; and, if competent persons are 
put into the collectors' offices, no mistakes would occur, 
and a naval officer would have nothing to revise. 

1 In 1836, when the expense of collecting duties was under considera- 
tion, there was an effort made to abolish the naval office; hut the commit- 
tee to whom the matter had been referred made no recommendation in 
their report. The naval officers at Norfolk and Portsmouth, who feared 
that their offices might he abolished, wrote letters to the secretary con- 
cerning their duties, from which a very good idea can be gained what they 
were. — No. 480, 24 Cong., first session. 



502 FINANCIAL HISTORY OF THE UNITED STATES. [1818. 



CHAPTER XI. 

COINAGE. 

For several years after establishing the mint, and regu- 
lating the coinage, the market-value of gold and silver 
abroad and at home corresponded with the mint valua- 
tion, so that both metals circulated at the legal ratio. 
Neither one was worth for exportation more than the 
other: an eagle and ten dollars were convertible terms, 
and either was given by the banks in exchange for notes 
at the option of the holder. 

Not until 1818, when the question arose of resuming 
cash payments by the Bank of England, did the fact 
clearly appear in this country that a change had occurred 
in the relative value of gold and silver. An ounce of 
gold, from the operation of that or other causes, was 
worth more than fifteen ounces of silver. When remit- 
tances of coin, therefore, were made from the United 
States to England, gold was preferred to silver for the 
simple reason that a gold eagle, which could be obtained 
here for ten dollars, in London could be converted into 
more pounds, shillings, and pence, than ten silver dollars. 1 

1 See papers by Condy Raguet in National Gazette, 1820; on the Rela- 
tive Value of Gold and Silver, Ibid., Jan. 26, 1822; History of the Gold 
Coinage of the U. S., Phil. Examiner, Oct. 15, 1834. The last two papers 
are republished in the appendix to Raguet's Currency and Banking. 



1819.] COINAGE. 503 

The first remedy proposed for this state of things was 
the one which Dallas had recommended on a former occa- 
sion, — the prohibition of the export of coins by legisla- 
tion. This remedy was finally abandoned in 1819, after 
the report of Mr. Talbot from the committee of finance. 
" Of the inefficiency, if not impotence," he says, " of legis- 
lative provisions to prevent the escape of the precious 
metals beyond the territorial limits of the government, 
the history of all countries in which the power of legisla- 
tion has been thus exercised bears testimony. . . . Indeed, 
no error seems more entirely renounced and exploded, if 
not by the practice of all nations, at least in the disquisi- 
tions of political economists, than that which supposed 
that an accumulation of the precious metals could be pro- 
duced in the dominions of one sovereign by regulations 
prohibiting their exportation to those of any other." 1 
Since that time no one has thought of stopping the out- 
ward flow of the precious metals by legislative inhibition. 

Of the two metals, it was apparent, even before the war 
of 1812, that gold was more desirable for exportation than 
silver, and that American silver coins were preferable 
to foreign silver ones because the former were heavier. 
When the United-States bank contracted with Baring and 
Reid, in 1819, for a supply of specie, they were to fur- 
nish, if practicable, gold and silver in equal amounts, 
determined by the American valuation of one to fifteen. 
More than two million dollars of silver were supplied, 
but not an ounce of gold. 2 The legal valuation of gold 
did not correspond with that of the market. Its valua- 

1 Senate Keport, Jan. 25, 1819, 3 Finance, p. 393. 

2 Lowndes's Report, Jan. 26, 1819, 3 Finance, p. 398. 



504 FINANCIAL HISTOEY OF THE UNITED STATES. [1819. 

tion was too low compared with silver, and consequently 
gold fled to foreign countries. Year after year the cur- 
rent set away from our shore. Congress saw the move- 
ment, but did nothing to prevent it. 

The same thing happened with respect to silver. Of 
the foreign silver coins, the Spanish and Mexican coins 
especially were lighter than the corresponding American 
ones, because they had circulated many years. Of course, 
the more the coins were employed, the lighter they grew ; 
and thus the evil of using them increased. What should 
be done ? The solution of the question became momen- 
tous and perplexing. 

The exportation of gold was prevented somewhat by 
the rate of exchange. Gallatin, in his " Considerations on 
the Currency and Banking System," which appeared in 
1821, 1 said that four dollars and fifty-six cents of Ameri- 
can gold coin at that time contained a quantity of gold 
equal to that in a sovereign. It was exported to England 
as soon as the exchange rose to four dollars and sixty-one 
cents per pound sterling, which was nearly three and 
three-fourths per cent above the nominal, and three per 
cent below the true par, calculating this at the rates of 
fifteen and six-tenths to one, or four dollars and seventy- I 
five cents per pound sterling. With the exception of the 
year of the embargo, the exchange on London from 1795 
to 1821 never rose to the nominal par ; or, in other words, 
during that entire period, the exchange was always favora- 
ble to the United States,, never rising higher than two per 
cent below the true par. This is the reason why our gold 
coins, though under-rated, were not exported till the year 

1 Writings, vol. iii. p. 304. 



1*19.] COINAGE. 505 

1821, when the exchange rose from four dollars and sixty 
cents to four dollars and ninety-eight cents per pound 
sterling. Then their exportation began ; and a premium 
of one-half per cent for them was given when the pre- 
iiaum on the nominal par of exchange was five per cent, 

jrrespondiug to an exchange of nearly four dollars and. 
(ftxty-seven cents per pound sterling. From that period 
to the end of the year 1829, the exchanges, with a few 
short exceptions, were unfavorable to the United States, 
and for a long time afterward. " It is perfectly clear," 
concludes Gallatin, " whilst our gold coins are thus under- 
rated, they will be exported whenever the exchange rises 
above four dollars and sixty-one cents to four dollars and 
sixty-four cents per pound sterling ; and that, if rated 
according to the true or approximate relative value of 
gold to silver, they would not be exported to England 
till the exchange tad risen to at least four dollars and 
eighty cents to four dollars and eighty-three cents, or 
more than one per cent above the true par." 

In 1819 a committee was appointed by the House to 
investigate the subject. Mr. Lowndes made a report, 
which shows that he comprehended the importance of the 
inquiry, and the need of providing a remedy. He recom- 
mended passing a bill, of which the following is an out- 
line : — 

There should be retained by the mint as seigniorage, 
from every dollar coined, 14 t 8 ^q grains of silver, which 
would reduce the weight of the dollar to 356$^ of fine 
silver, and to 399 t 3 q 6 q grains of standard silver. There 
should be the same proportion in small coins. 

The bill further provided that the eagle should be re- 



506 FINANCIAL HISTOEY OF THE UNITED STATES. [1831. 

duced from 247 J grains of fine gold, or 270 grains of' 
standard gold, to 237 i 9 q 8 5 - grains of fine gold, or 259^ 
grains of standard gold, and small coins in proportion. 
No deduction was to be made for seigniorage, but the 
expense of refining all gold and silver below the m)f , 
standard was to be paid by the owner. s 

Just before making this report, Robert Patterson, tL 
director of the mint, stated in a communication to Craw- 
ford, the secretary of the treasury, that, "considering 
the expense of the importation of gold into the United 
States, he thought that our government would be justifi- 
able in adding ten per cent to the present relative value 
of gold. This would hold out a powerful and effectual 
motive for the importation of gold into the United States, 
and, at the same time, act as a powerful barrier against 
its exportation." * Had this been done, every silver dollar 
and half-dollar would have been expelled from the country 
within a year. 

Two years afterward another report was made by Mr. 
Whitman. 2 He agreed with the recommendations of Mr. 
Lowndes in respect of gold coins, but was silent concern- 
ing the silver ones. The proposed reduction of gold coins 
was four pei cent, which at that time expressed the 
change in the relative value of the two metals. This bill, 
like its predecessors, was permitted to die silently. The 
exportation of gold coins continued until early in 1822, 
when not one was to be seen in circulation, although six 
million dollars had been coined at the mint. Had Whit- 

1 Crawford's Communication to the Senate, containing Patterson's Let- 
ter, Jan. 25, 1819, 3 Finance, p. 395. 
* Feb. 2, 1821 3 Finance, p. 660. 



1830.] COINAGE. 507 

man's recommendation been adopted, it would have 
proved inoperative ; for at a subsequent period there was 
a greater change than four per cent in the relative value 
of gold and silver, and consequently the new coins would 
have been carried away. 

Congress, though neglecting or not daring to legislate, 
discussed the subject for the next fifteen years with more 
wisdom than is usually shown in such matters. Mr. San- 
ford's report in the Senate 1 was a candid and able docu- 
ment, in which he recommended, among other things, that 
no foreign coin should form a legal tender, nor any gold 
or silver coins which had lost one-twenty-fifth part of 
their original weight. He maintained that gold coins had 
been exported because they were rated too low, and 
American silver coins because they were worth more than 
the foreign ones in circulation. Ingham, the secretary of 
the treasury, made a special report, 2 evincing much ability 
and wisdom. He swept over a wide field, and maintained, 
that if gold and silver were to remain as measures of 
property, without changing the ratio, it would be advisa- 
ble to discontinue the gold coinage whenever the premium 
for gold should exceed two per cent. 

" If it be intended," he continued, " to render gold and 
silver equally attainable in the United States, proper 
allowance being made for the influence which an increased 
demand must have on the price, a ratio of one to sixteen 
would, in all probability, be necessary." Ingham favored 
the adoption of a single standard of silver. 

In 1831 appeared a report from a special committee, 

1 Senate Doc. No. 19, 21 Cong., first session. 

2 May 4, 1830, Ex. Doc. No. 117, 21 Cong., first session. 



508 FINANCIAL HISTORY OF THE UNITED STATES. [1831. 

appointed by the House, of which Campbell P. White 
was chairman. 1 This was the fruit of considerable study, 
and embodied at the close a series of deductions which 
are worth laying before the reader. 

1. That the operations of commerce will assuredly dis- 
pense to every country its equitable and useful propor- 
tion of the gold and silver in currency, if it is not repulsed 
by paper, or subjected to legal restrictions. 

2. That it cannot be of essential importance to any 
State, whether its proportion of the money of commerce, 
thus distributed, consists of gold, or of silver, or of both 
metals ; it being the instrument of exchange, but not the 
commodity really wanted. 

3. That there are inherent incurable defects in the sys- 
tem which regulates the standard of value in both gold 
and silver, its stability as a measure of contracts, and 
mutability as the practical currency of a particular na- 
tion, are serious imperfections; whilst the impossibility 
of maintaining both metals in concurrent, simultaneous, 
or promiscuous circulation, appears to be clearly ascer- 
tained. 

4. That the standard being fixed in one metal is the 
nearest approach to invariableness, and precludes the 
necessity of further legislative interference. 

5. That gold and silver will not circulate promiscuously 
and concurrently for similar purposes of disbursement, 
nor can coins of either metal be sustained in circulation 
with bank-notes, possessing public confidence, of the like 
denominations. 

1 Feb. 22, 1831, No. 95, 21 Cong., second session. See another report by 
the same committee, March 17, 1832, No. 420, 22 Cong., first session. 



1834.] COINAGE. 509 

6. That if the national interest or convenience should 
require the permanent use of gold eagles and their parts, 
and also of silver dollars, the issue of bank-bills of one, 
two, three, five, and ten dollars, must be prohibited. 

7. That if it should hereafter be deemed advisable to 
maintain both gold and silver coins in steady circulation, 
and to preserve silver as the measures of commerce and 
of contracts, gold must be restricted to small payments. 

8. That if it is the intention to preserve silver as the 
principal measure of exchange, permanently and securely, 
it would be necessary to estimate the relative value of 
gold under its present average or probable future value 
in general commerce. 

The principal recommendation of the committee was a 
change of the ratio between gold and silver. The ratio 
proposed was 1 of gold to 15-^^ of silver. But the time 
was not yet for changing the standard. 

At length, in 1834, Congress changed the valuation of 
gold coins. 1 The eagle was fixed at 232 grains of pure 
gold, and 258 grains of standard gold, and the smaller 
gold coins in proportion. The Act further provided 
that these coins should be received in all payments when 
of full weight, determined by their respective values; 
and, when they were not of full weight, there should be a 
corresponding diminution in their legal values. 2 

1 Act, June 28, 1834, 23 Cong., first session, chap. 95. 

2 See Reports, No. 278, 23 Cong., first session, and No. 513, 24 Cong., first 
session. This legislation was not pleasing to every one. Said William 
Reid, in a lecture on Money and Currency, in July, 1834, " To show the 
reckless disregard of all the usual means of acquiring information of which 
the authors of this practical blunder in legislation have been guilty, and 
their own ignorance of the subject, the seigniorage, or charge for coinage, 



510 FINANCIAL HISTORY OF THE UNITED STATES. [1834. 

The standard fineness of these coins was 899^^, which 
was retained for three years; then it was changed to 
i 9 o°oV But the weights of the gold coins were not altered 
by this Act. All minted after July 31, 1834, were a legal 
tender at their nominal value. 1 

Thus a fifteen-years' discussion had passed ere Con- 
gress ventured to legislate on this important and delicate 
matter. That body evidently tried to do the best thing 
possible ; but the futility of their work showed more 
clearly than ever the great difficulty of establishing a 
legal valuation of the two metals, which should always 
correspond with their valuation in the chief markets of 
the world. 

This change in the valuation of gold, though very 
slight, was taiuted, so some persons thought, with dishon- 
esty. William Reid remarked, in a lecture delivered at 
Philadelphia on this subject, "It will, perhaps, be said 
by the supporters of the measure, however, that the 
alteration made in the standard of money is so extremely 
trifling, that it will excite hardly any attention : let, them 
not so delude themselves, or lay this flattering unction to 
their souls. If the degradation in the standard had been 
only one-third of what it really is, it would not have 
escaped detection and animadversion. Nay, if it had 
only appeared to make a change in the standard, although 
the change was so small that it could not have been corn- 
computed, it would be severely censured. This is one 

of silver as well as gold, is declared by this bill to be the same, or one-half 
per cent. Now, the expense of coining silver is in reality at least three times 
greater than that of coining gold." — p. 28. 

1 Act, Jan. 18, 1837, 24 Cong., second session, chap. 3. 



1849.] COINAGE. 511 

of those things in which even the appearance of evil is to 
be avoided.'* 1 He feared that this would prove only 
a prelude to greater alterations in the value of the coins 
in the wrong direction, from which the nations of the Old 
World had suffered; but his fears were never realized, 
nor did these amendments to the coinage laws have any 
effect on prices. 

The new valuation soon exposed the fact that the valu- 
ation of silver was too low : consequently it disappeared 
from circulation. Later, the golden riches of California 
and Australia were discovered. The effect of these dis- 
coveries was to diminish the value of gold ; and, of course, 
silver shrank still further out of sight. So completely 
were the silver coins expelled from the channels of cir- 
culation, especially those of small denomination, that in 
1853 there was a new adjustment of the coinage, and the 
weight of the silver coins of less denomination than the 
dollar was reduced enough to insure their retention in 
circulation ; but their legal-tender function was limited to 
five dollars. 

In 1849 Congress authorized the coinage of gold dol- 
lars. 2 The expediency of coining them had been discussed 

1 Lect. on Money and Currency, p. 29. 

2 March 3, 30 Cong., second session, chap. 109. The reason for the 
small gold coinage, it was supposed for many years, " was the wrong 
ratio between that metal and silver; and this was true, hut not the main 
reason. The main reason was, that, when kegs of sovereigns arrived in 
New York, they were placed in hank, and the paper money of the institu- 
tion issued in exchange. The sovereigns remained unpacked for months, 
and then on the turn of the exchanges, returned whence they came, the 
hank simply withdrawing from circulation the notes it had uttered when 
the specie came in. Thus the New-York hanks were, iu fact, the mint: 
they coined paper money to take the place of coin. There was nothing 



512 FINANCIAL HISTORY OF THE UNITED STATES. [1834. 

for several years. Committees had considered the subject, 
and reported unfavorably. Patterson, the director of the 
mint, contended that such a coin would be " too diminu- 
tive." Another objection raised by him was, that the 
dollar was already represented in a silver coin. A brief 
employment of gold dollars convinced all of the soundness 
of Patterson's reasons against coining them. 1 

In 1834 it was declared, that, for all standard gold and 
silver deposited for coinage, payment should be made in 
coin within forty days from the making of the deposit ; 
but the depositor could receive payment within five days, 
if he were willing to relinquish one-half of one per cent 

to induce the owner of the gold to incur the delay and expense of sending 
it to Philadelphia: on the contrary, that process would have made the 
pieces so much less valuable for export, and, by going into circulation, 
would have operated against the issues of the banks. 

" The largest proportion of the government revenue was received at the 
New-York custom-house; but the government financiers were so connected 
with banks, that specie was by no means important to the transaction. If 
the importer paid his duties in specie, it was in foreign coin, taken at a 
rate fixed by law, and then by the custom-house turned over to a bank, 
which packed them up for re-exportation as soon as the exchanges favored 
the operation. Thus the mode by which Congress carried out its power of 
regulating the currency, was to place the mint out of the reach of volun- 
tary depositors, and by taking foreign coins as tender, and allowing the 
people to be supplied with bank-notes for circulation, effectually to destroy 
all motive for increasing the national currency. By these means the small 
channels of circulation were entirely occupied with the Spanish fractions, 
— sixteenths, eighths, fifths, or pistareens and quarters, — while dollars and 
upwards were supplied by bank-notes; gold being rarely seen, and used 
only as an agent in the foreign exchanges. In the first forty-three years of 
the mint, only $11,825,8 ( .)0 of gold were coined in the United States; that is 
to say, a sum equal to the coinage of the last two months." — 1852, Dem. 
Rev., vol. xxx. p. 172. 

i Patterson's Letter to McKay, Chairman of Com. of Ways and Means, 
Jan. 20, 1844. No. 316, 28 Cong., first session. 



1848.] COINAGE. 513 

of his deposit. All gold coins minted prior to July 1, 
1834, were receivable at the rate of 94^ cents per penny- 
weight. 1 

At a later period the expense of coining to depositors 
was much larger than it ought to have been. A mercan- 
tile house in the city of New York, whose receipts of Cal- 
ifornia gold for a year were $1,381,875, paid one-quarter 
per cent for sending the same to the mint. Then there 
were delays in coinage. On the 11th of February, $111,- 
338 in bullion were deposited at the mint, which was not 
coined until the 5th of April, — a delay of fifty-two days. 
The expense of sending this consignment was nearly one 
and a quarter per cent, or $1,410. To lessen the expense 
of coinage, an effort was made to establish a branch mint 
at the city of New York. This was strongly urged by 
Walker, when secretary of the treasury. He asserted, 
that, if a mint had existed there, several millions more 
would have been annually coined during his four years 
of service as chief of the treasury department. " This," 
he says, " is proved by the fact that most of the foreign 
coin sent from New York and other points to Philadelphia 
for coinage has been that portion which was received for 
government dues, and transferred mainly — not by the peo- 
ple or the merchants, but by order of the treasury depart- 
ment — from the several government depositories ; and 
but little coin, comparatively, has gone from New York, 
transmitted voluntarily by individuals for recoinage, to 
Philadelphia." Persons, he further asserted, would not, to 
any great extent, subject themselves to the risk, expense, 
and delay of the process; whereas the entire amount of 

1 Act, June 28, 1834. 



514 FINANCIAL HISTORY OP THE UNITED STATES. [1851. 

coin and bullion, amounting to many million dollars, that 
flowed into New York by the operations of commerce and 
emigration, would be changed into American coin if a 
mint existed in that city. 1 

For the purpose of enabling the mint to make returns 
to depositors with as little delay as possible, the secretary 
of the treasury was directed to keep there, when the con- 
dition of the treasury would admit of so doing, one million 
dollars, from which the depositors of bullion could be paid 
as soon as practicable after the value of their deposits was 
ascertained. But when Corwin was secretary, he recom- 
mended the issue of mint certificates, which should be 
receivable for all debts due to the government, and the 
withdrawal of the bullion fund, which was maintained at 
an annual expense of more than three hundred thousand 
dollars. This, he declared, might be saved in interest by 
applying that fund to the redemption of the public debt. 
He maintained, too, that great advantages would accrue 
to the business community, and to the general trade of 
the* country, by throwing the amount of that fund into 
circulation, instead of keeping it constantly as dead capital 
in the vaults of the mint. 2 

The plan recommended by Corwin was to issue cer- 
tificates, under the authority of Congress, to the amount 
of six or seven million dollars, in sums of a hundred, 
five hundred, a thousand, five thousand, and ten thou- 
sand dollars, payable to the order of the treasurer of 
the mint, and to distribute them in due proportion to 

1 Walker's Annual Report, 1848. Phoenix's Report, Sept. 14, 1850. No. 
490, 31 Cong., first session. 

2 Annual Report, December, 1851. 



1838.] COINAGE. 515 

the mint and its branches, and as soon as any deposit 
of gold bullion was assayed, and its value ascertained, 
to pay the amount to the depositor in these certificates. 
Receivable in payment of all dues to the United States, 
it was expected that they would always command their 
full par value, and would be received on deposit as cash 
by the banks, and held by them for paying duties or 
other public obligations ; but Congress did not consider 
the recommendation. With still less favor was the sub- 
sequent recommendation of the director of the mint re- 
ceived, that mint certificates should be issued to depositors 
for sums so small as fifty dollars, payable to bearer. Cobb, 
a later secretary of the treasury, condemned the recom- 
mendation in his annual report. 1 

To increase the coinage of the precious metals, branch- 
mints were established at New Orleans, at Charlotte, 
N.C., where a considerable quantity of gold was annually 
obtained, and also at Dahlonega, Ga. It was not claimed 
that the mint at Philadelphia could not coin all the gold 
and silver brought there, but that, by erecting other mints 
at places more convenient to the owners of bullion, the 
business of coining would increase. Congress never au- 
thorized a more useless expense. This was clearly proved 
in due time ; but the plea for creating those establish- 
ments was known to be shallow in the beginning. The 
officers who managed them led an easy life, and doubt- 
less this was intended by Congress. In truth, these 
institutions were created less to supply a public need than 
to make places for needy politicians. The chief object 
of those who caused this unjustifiable extravagance was 

1 Annual Report, December, 1858. 



516 FINANCIAL HISTOKY OF THE UNITED STATES. [1850. 

attained, if we believe the report of a committee who 
investigated the history of these branches in 1842. Espe- 
cially with reference to the branch at Charlotte, they 
say, " Judging from the amount of money expended for 
trees, flowers, and shrubbery, the labor done in the yard, 
the furniture purchased, and the baths erected, the com- 
mittee infer, that, under the superintendence of the re- 
fined and tasteful gentlemen who were put in charge of 
this branch mint, it lacked nothing that could gratify 
the eye, contribute to health, soften the body, and insure 
repose." 1 The committee wisely recommended the aboli- 
tion of all the branches. Several years afterward another 
branch was established at San Francisco, but this has 
served a useful purpose. 

With respect to the money of foreign countries, Con- 
gress enacted in June, 1834, 2 that, after the end of the 
following month, the gold coins of various countries should 
pass current, " and be receivable in all payments by weight, 
for the payment of all debts and demands," at rates then 
established. In 1857 it was enacted that Mexican dollars 
should thereafter be received at a reduced rate, and, when 
reaching the mint, should be re coined. The former laws, 
making foreign coin a legal tender, were repealed. 3 

From the opening of the mint to the 1st of January, 
1850, $128,813,558 were coined. The value of the gold 
coined and recoined at Philadelphia was $63,470,612, — an 
annual average of $1,113,520. In 1847 specie was sent 
from Europe, amounting to $24,153,000, to pay chiefly for 

1 Report No. 462, 27 Cong., second session. 

2 June 28, 23 Cong., first session, chap. 96. 

« Act, Feb. 21, 1857, 24 Cong., third session, chap. 56. 



1850.] COINAGE. 517 

provisions. 1 The expense to the government for coinage 
at Philadelphia was 2jq\ per cent ; at New Orleans, 6^-^ ; 
in North Carolina, 9 per cent ; and in Georgia, 9^ 7 q per 
cent. 2 Prior to the gold discoveries in California, the 
mint had been chiefly supplied with foreign coin by the 
government. The law establishing the mint required this 
to be done. Some bullion was received from other 
sources. Otherwise, remarked a committee of the House 
in 1850, "the coinage of the mint would have been re- 
duced to a comparatively small amount." 3 

1 During the year ending Sept. 30, 1849, 213,736 immigrants arrived at 
New York; and it was estimated that they brought $10,686,800, or $50 
apiece. — Phcenix's Report, No. 490, 31 Cong., first session. 

2 Director's Report, Jan. 18, 1850. 3 Phcenix's Report. 



518 FINANCIAL HISTORY OF THE UNITED STATES. [1815. 



CHAPTER XII. 

APPROPRIATIONS AND EXPENDITURES. 
1815-1828. 

Peace caused a reduction of the national expenditure. 
But the arrearages in the war and navy departments 
especially, and the remaining balance of the floating debt, 
including treasury notes and loans, must be satisfied 
before a permanent arrangement of the finances could 
be effected. Dallas expected that in a year the amount 
of such indebtedness, which was very large, would be 
known ; and so nearly fulfilled were his expectations, that 
Crawford, who succeeded him, in his report the following 
year, reckoned $1,540,000 as the total amount of war 
arrearages remaining unpaid. 

Peace was declared Feb. 18, 1815. As soon as the 
event was announced, vast quantities of goods were im- 
ported into . the country, in consequence of which the 
receipts swelled to $36,643,598.77 within the year, and 
the treasury was relieved. 

Never was the head of the treasury department more 
troubled to make an estimate of the receipts and expen- 
ditures than for the year after the close of the war of 
1812. It was, indeed, much easier to estimate the probable 
demands on the treasury than to estimate the receipts. 
The enormous inflow of goods, notwithstanding the high 



1815.] APPROPRIATIONS AND EXPENDITURES. 519 

duties exacted, the revision of the entire system of taxa- 
tion which was soon to be made, cut away the ground 
entirely for estimating with any degree of confidence the 
probable amount of the national income. It was impossi- 
ble to be exact in making these calculations. Dallas did 
the best thing possible : he estimated what the revenues 
would be if the laws then in operation were continued, 
and also their amount if the laws were modified in cer- 
tain ways clearly specified. 

The only estimate which need concern us is the one 
based on a modification of the revenue laws. What 
changes did Dallas recommend, and how were they re- 
garded by Congress? Though internal taxation had be- 
come necessary in consequence of the heavy shrinkage 
of income from customs, it was generally expected that 
peace would bring a diminution of the burden. In fulfil- 
ment of that expectation, a reduction of the direct tax, 
a discontinuance of those taxes which on trial had proved 
unproductive as well as inconvenient, and, above all, the 
exoneration of domestic manufactures from every charge 
that could obstruct or retard their progress, seemed to 
Dallas to be the objects that especially invited legislative 
attention. 

What he specifically proposed, therefore, was, that 
the Act of July 1, 1812, imposing an additional duty 
of a hundred per cent on goods, wares, and mer- 
chandise imported into the country, and also the Act 
of July 29, 1813, imposing a duty on imported salt, 
be continued until the end of June, at which time 
he supposed that a new tariff would be completed, and 
put in operation. Both of these Acts would become 



520 FINANCIAL HISTORY OF THE UNITED STATES. [1815. 

inoperative the 18th of February, 1816, — after a year's 
peace. 

He also proposed that the Act of July 24, 1813, impos- 
ing a duty on sugar refined within the United States, and 
the Act of Aug. 2, 1813, imposing a duty on bank-notes, 
notes discounted, and bills of exchange, be continued 
without limitation, but with proper amendments to render 
the collection of the duties more equal and certain, and 
that the Act of Dec. 15, 1814, imposing duties on car- 
riages, and that part of the Act of Dec. 23, 1814, which 
related to the duties on sales at auction and increased 
rates of postage, be continued. 

Dallas further proposed that the direct tax be reduced 
from six million dollars to one-half that amount ; that the 
duties on distilled spirits be discontinued after the end of 
June, 1816 ; and that the licenses to distillers be doubled ; 
also that the duties on licenses to retailers of wines, 
spirituous liquors, and foreign merchandise, be reduced to 
the rates of the year 1813, with due regard to the period 
when licenses began and would expire. 

There were two other recommendations. One was, that 
the Act of Jan. 18, 1815, and the one passed a month later, 
imposing duties on various articles manufactured or made 
for sale within the United States, and the Act of the for- 
mer date, imposing duties on household furniture and 
watches, be repealed. The other recommendation was, 
that the Act of March 3, 1815, providing for the collec- 
tion of duties on imports and tonnage, and another of the 
same date, fixing the compensation, and increasing the 
responsibility, of collectors of the direct tax and internal 
duties, be continued without limitation. 



1816.] APPROPRIATIONS AND EXPENDITURES. "521 

By thus modifying the revenue system, he supposed 
there would be a reduction of seven million dollars in the 
direct and internal duties; but he also expected that a 
similar sum would be forthcoming from the increase of 
the duty on licenses to distillers, and the continuance 
of the stamp-duties and those on refined sugar, — these 
sources yielding a million and a half dollars, the salt-duty 
five hundred thousand dollars, — while an increase of five 
million dollars was expected from foreign importations. 
These recommendations, with two slight modifications, 
were approved by the Committee of Ways and Means, and 
adopted by Congress. 1 

With such a modification of the revenue laws, Dallas 
estimated there would be a deficit of $6,484,269; but as 
the entire annual appropriations were never paid during 
the year, and as he had power to issue treasury-notes to 
meet any deficiency, he did not ask for more legislation 
to enable him to meet the probable demands on the treas- 
ury during the next twelve months. 

In managing the finances, it had been the custom to 
consider the demands and supplies of each year without 
regard to the balances of appropriations, or of revenue 
existing at the close of preceding years. Dallas pursued 
a similar course. The annual appropriations had never 
been wholly absorbed in the year for which they were 
granted; and, in making entries of the revenue, a discrim- 
ination was maintained between the amount of duties 
accruing within the year as a debt to the government, and 
the amount paid as money into the treasury. The annual 
appropriations, however, were not charged on the revenue 

1 Jan. 9, 1816, 3 Finance, p. 62. 



522* FINANCIAL HISTOKY OF THE UNITED STATES. [1816. 

of the year specifically in which they were made; and, 
indeed, they were satisfied whenever demanded from any 
unappropriated money in the treasury, without reference 
to the time when the revenue accrued, or when the money 
was actually received. 

Dallas did not remain much longer in the treasury de- 
partment. He had taken office at a critical time, and, by 
his wisdom, boldness, and firmness, extricated the govern- 
ment from the threatened gulf of bankruptcy. Though 
holding office less than two years and a half, he had 
wrought wonders. He found the financial machinery of 
the government disabled for want of a competent head to 
manage it : when he retired, it was in fine working condi- 
tion. No secretary of the treasury, except Hamilton, 
ever won so much reputation, and so justly, in such a 
brief period. 

He was succeeded by Crawford, 1 who was secretary dur- 
ing the eight years of Monroe's administration. He had 
represented Georgia in the Senate, and was familiar with 
all the financial discussions and legislation of the war 
period. He had defended the first United-States bank, 
and had contended for the renewal of its charter with 
great power : he was no less a friend of the new institu- 
tion. In the prime of life, possessing an intuitive rather 
than a reasoning mind, with great capacity for work, and 
of the strictest integrity, he was well qualified for the 
office. 

His predecessor had accomplished very much in restor- 
ing the national credit, and replenishing the treasury. 
The net revenues from duties on merchandise and ton- 

i See p. 299. 



1817.] APPROPRIATIONS AND EXPENDITURES. 523 

nage, internal duties, direct tax, sale of public lands, 
postage, and incidental receipts, had risen from $11,500,- 
606, in 1814, to $49,893,219, from the same sources, the 
following year. This was enough to enable Crawford to 
pay all the immediate demands on the government, and 
leave a large sum to be applied in reducing the public 
debt. 

Crawford, therefore, was not troubled about getting 
funds to discharge the public obligations. He expected 
to pay the demands on the treasury in the eastern section 
of the Union in local currency by the end of the year ; 
but this expectation was not realized. Payments to the 
government in that section had been made in treasury- 
notes. To discharge its payments there, which consisted 
almost wholly of interest on the public debt and portions 
of the principal, Crawford saw no other way, beside 
issuing treasury-notes, except to obtain a temporary loan 
from the United-States bank. The latter alternative was 
chosen, and a loan was obtained. 

When those claims were satisfied, there was no danger 
of embarrassment from New England until the next quar- 
terly payment of interest. To escape resorting to loans 
for that purpose, the secretary urged a cessation of the 
issue of treasury-notes of all kinds. By adopting this 
policy, the revenue in that quarter, he declared, would be 
more than sufficient to satisfy all the claims of the public 
creditors. 1 Congress accordingly passed a law for retiring 
them, which produced the desired effect. 2 

At an early period in Crawford's administration of the 

1 Annual Report, December, 1816. 

2 Act, March 3, 1817, 14 Cong., second session, chap. 85. 



524 FINANCIAL HISTORY OF THE UNITED STATES. [1817. 

finances, Congress considered the subject of unsettled 
balances in favor of the government. 1 A report was made 
in 1816, containing considerable information, and many 
recommendations for preventing such large defaults in 
the future receipts and expenditure of the public revenues 
as appeared on the face of many of the unsettled bal- 
ances. The law which prescribed how the accounts should 
be kept was amended the next year, and all accounts 
thereafter were to be settled by the treasury department. 
The second and third auditors were charged with auditing 
the accounts of the war department ; the accounts of the 
navy went to the fourth auditor ; those of the State de- 
partment, post-office, and Indian affairs, to the fifth ; and 
the other accounts, to the first. Two persons were ap- 
pointed to perform the functions of comptroller, which 
previously had been performed by one. The secretary 
of the treasury was required to "cause all accounts of 
the expenditure of money to be settled within the year," 
except where the distance was so great as to prevent his 
doing this ; and, in regard to expenditures at such places, 
he was to fix periods for making settlements. The comp- 
troller, too, was to lay before Congress annually, during 
the first week of the session, a list of those officers who 
had failed to make settlements in conformity to law. 2 

i Huger's Report, April 24, 1816, 3 Finance, p. 123. 

2 Act, March 3, 1817, 14 Cong., second session, chap. 45. It was further 
enacted, " that in the annual statements of all accounts on which balances 
appear to have been due more than three years, which the comptroller is 
now required bj 1 " law to make, he shall hereafter distinguish those accounts 
the balances appearing on which shall in his opinion be owing to difficul- 
ties of form, which he may think it equitable shall be removed by an Act 
of Congress ; and where the debtors by whom such balances shall have 



1817.] APPROPRIATIONS AND EXPENDITURES. 525 

The largest number of unsettled accounts was in the de- 
partment of state. 

With respect to estimating the annual receipts, it was 
not much easier for Crawford to perform this duty than 
it had been for Dallas and his predecessors. Said Secre- 
tary Woodbury in 1835, " The difficulty in attaining 
much certainty in estimating the receipts from either 
customs or lands in any particular year, in a country so 
new, enterprising, and prosperous as ours, has ever been 
considerable, in addition to the fluctuations we always 
shall be liable to from short crops, pestilence, and war." 
But the revenues were often affected by other powerful 
causes. Of these, two were the duties levied on imports, 
and the quantity and quality of the money in circulation. 
The tariff-laws were frequently changed; and every 
change affected importations in some way, and, of course, 
the revenues. So, too, when money was abundant, 
whether the duties on importations were high or low, 
they increased. Another cause affecting the revenues 
was the giving of bonds by importers. Credit was al- 
lowed for a very large portion of the duties, and the 
government did not always receive the amount due at the 
time stipulated; and not infrequently considerable losses 
occurred. Then, again, a considerable amount of duties 
was refunded every year in the way of drawbacks ; and 
the amount which the government was likely to be asked 
to refund could not be estimated very accurately. With 

been due more than three years shall be insolvent, and have been reported 
to Congress for three successive years as insolvent, the comptroller shall 
not be required in such case to continue to include such balances in the 
statement above mentioned." — Sect. 14. 



526 FINANCIAL HISTORY OF THE UNITED STATES. [1817. 

so many causes acting with greater or less force, the reader 
will perceive how difficult it was to estimate the probable 
amount of revenue ; yet it was necessary to make an 
estimate in order to know how to provide for the expen- 
ditures. The annual variation, therefore, between the esti- 
mated receipts and the actual ones, caused no surprise. 
The absence of variations would have been surprising. 
Crawford, like previous secretaries, presented estimates of 
the receipts, and also gave reasons (which were usually 
very brief) on which his calculations were based. They 
were subsequently examined by the committee of ways 
and means, and a report was made thereon to Congress ; 
and his reasonings, in nearly every instance, were re- 
garded conclusive by the committee. This was no small 
praise, for some of the estimates of his successors have 
been very roughly overhauled. 

It would require too much space to explain the grounds 
on which these estimates were annually founded ; nor can 
we delay to explain the causes of the variation between 
the estimated and the actual receipts of each year. One 
of the noteworthy causes, not fully weighed by Crawford 
the first year, was the enormous importation of goods, not- 
withstanding the high tariff. Dallas had committed the 
same error the year previously. He neither knew, nor had 
he any reason for expecting, that the country would be 
deluged with the products of the Old World. Then the 
tariff of 1816 went into operation, which, two years after- 
ward, was considerably modified. The huge volume of 
paper currency shrank enormously, and this event checked 
importations. These were the more potent causes of vari- 
ation while Crawford administered the finances. 



18 IT.] APPROPBIATIONS AND EXPENDITURES. 527 

To estimate the expenditures was not so difficult. These 
were made in the beginning by the several departments, 
and then submitted by the secretary of the treasury to 
Congress. Sometimes they were diminished, sometimes 
increased. Almost always new expenditures were author- 
ized. When the amount was determined, and also the 
estimates of receipts which were likely to accrue from 
existing laws, a foundation was laid for several inquiries. 
Will the receipts probably be sufficient to pay the expen- 
ditures ? Shall the revenues be drawn from other sources ? 
or, in case of a deficiency, shall this be bridged by borrow- 
ing, or by cutting down expenditures ? If not, what new 
fountains of national income shall be opened ? These 
inquiries were answered in various ways, and too often 
Congress displayed a painful lack of wisdom and principle 
in answering them. 

During the greater part of Crawford's term of office 
the revenues were so ample that he did not have to think 
about increasing them. The current expenditures were 
promptly paid, and the reduction of the debt was contin- 
ued. In his annual report, rendered near the close of 
1817, the permanent revenue was estimated at $29,525,000 
per annum, and the annual expenditure was stated at 
$21,946,351. Congress thought that the time had already 
come for parting with the internal revenue ; and conse- 
quently none was collected after the year 1817, except 
the balance which had accrued before that time. 1 The 



1 The amount of internal duties accruing to the government from the 
beginning of the year 1814 to the end of 1817, exclusive of the direct tax, 
exceeded seventeen million dollars. — Lowndes's Report on the Repeal of 
the Internal Duties, Dec. 9, 1817, 3 Finance, p. 230. 



528 FINANCIAL HISTORY OF THE UNITED STATES. [1830. 

committee who considered the subject did not regard the 
importations of the three previous years as furnishing a 
certain criterion for the future, yet believed they would 
remain the same ; nor was their belief less strong in the 
continuance of the exports of the country without a 
diminution in quantity and value. They entertained no 
doubt whatever, " under the circumstances of the United 
States, as to the propriety of reducing a revenue so far 
exceeding their ordinary expenses." 

Congress not only repealed the internal duties, but at 
the same time increased the expenditures. By thus re- 
ducing the receipts, and swelling the expenditures of the 
government, there would have been a deficit the next 
year, save for the arrearage of the direct tax and internal 
duties, and the balance which was in the treasury at the 
beginning of the year. 

It soon appeared, however, that the secretary of the 
treasury, and Congress, had been too confident in their 
estimates of the national income accruing from imports. 
The internal duties were removed when the revenue from 
imports was at top high-water mark. Importations grew 
more excessive, after the return of peace, until the close of 
1817 ; and then there was a re-action. Crawford informed 
Congress, that, if the expenditures were not reduced, it 
would be necessary to lay new taxes. In any event, 
whether the revenue was augmented or the expenditure 
diminished, a loan was necessary. The augmentation of 
the one, or the diminution of the other, could not be 
effected soon enough to prevent a deficiency : a loan of 
three million dollars, therefore, was authorized. 1 

i Act, May 15, 1820, 16 Cong., first session, chap. 103. 



1831.] APPROPRIATIONS AND EXPENDITURES. 529 

The situation was not overlooked by the Committee of 
Ways and Means, who prescribed as a remedy public and 
private retrenchment. " From the extraordinary depres- 
sion of commerce, within the last three years, the stagna- 
tion of our navigation, the depreciation in the value of 
our exports, the corresponding depreciation in the value 
of property of every description, and the serious embar- 
rassments under which every branch of industry now 
labors, economy and retrenchment in the expenditures of 
every citizen are imperiously required. The finances 
of the nation being seriously affected by those causes, 
there would seem to arise a correspondent obligation on 
the government to retrench its expenditures, and econ- 
omize its means. In the infancy of our institutions our 
expenses were, in general, limited by our receipts. We 
have been satisfied to advance gradually in furthering the 
system of national security and independence. Our pace 
has been greatly quickened toward the accomplishment 
of these objects, since the restoration of peace, by the 
great accession of our revenue. From that period it has 
been in what may be considered a forced state. We are 
now getting back to a condition more congenial with 
our population and national wealth." 1 Wisdom clearly 
demanded keeping the expenditures within the national 
income. 

Congress hesitated to apply the remedy, though the 
necessity for doing so was very apparent. Another year 
passed away, and the gap between income and expendi- 
ture had widened. The committee on manufactures 2 

1 Report on Deficit in the Revenue, April 14, 1820, 3 Finance, p. 522. 

2 Jan. 15, 1821, 3 Finance, p. 594. 



530 FINANCIAL HISTORY OF THE UNITED STATES. [1831. 

drew the following picture of trie situation. " It is not a 
matter of very great consolation to know, that, at the end 
of thirty years of its operation, this government finds its 
debt increased twenty million dollars, and its revenue 
inadequate to its expenditure ; the national domain im- 
paired, and twenty million dollars of its proceeds ex- 
pended ; thirty-five million dollars drawn from the people 
by internal taxation, three hundred and forty-one million 
dollars by impost, yet the public treasury dependent on 
loans; in profound peace, and without national calam- 
ity ; the country embarrassed with debts, and real estate 
under rapid depreciation ; the markets of agriculture, the 
pursuits of manufacture, diminished and declining ; com- 
merce struggling, not to retain the carrying of the prod- 
uce of other nations, but our own. There is no national 
interest which is in a healthful, thriving condition: the 
nation at large is not so; the operations of the govern- 
ment and individuals alike labor under difficulties which 
are felt by all." Another loan for five million dollars was 
necessary to cover the probable deficit of the year. 1 It 
was easier for Congress to authorize loans than to reduce 
expenditures. 2 

The next year, however, a select committee were ap- 
pointed to inquire whether any retrenchment could be 
made without impairing the public service. They re- 
ported 3 the following resolutions : — 

1 Act, March 3, 1821, 16 Cong., second session, chap. 38. 

2 Crawford's Annual Report, December, 1820. Com. on Errors in the 
Estimates, Dec. 28, 1820, 3 Finance, p. 580. Report of Com. of Ways and 
Means on the State of the Finances, Feb. 28, 1821, 3 Finance, p. 677. 

3 April 15, 20, 27, 1822, 3 Finance, pp. 800, 804, 805. 



1832.] APPROPRIATIONS AND EXPENDITURES. 531 

1. That the policy of resorting to loans for the sup- 
port of the government in times of peace is unwise and 
inexpedient ; 

2. That this government owes it to the people to take 
efficient measures for the redemption of the public debt ; 

3. That the resources of this nation are such as to 
render unnecessary a resort to a system of internal, direct, 
and indirect taxation ; 

4. That this government ought to adopt such a system 
of retrenchment as will dispense with useless expenditures, 
and bring the pay and salaries of government to what 
they were during ttie administration of former presidents ; 

5. That the tariff ought to be modified with a view 
to revenue. 1 

The fourth resolution was carried into immediate effect, 
expenditures were reduced, at the same time the revenues 
began to swell, and the pressure on the treasury was 
relieved. 

The chief cause of the diminution of the revenues was 
a heavy contraction of the paper money issued a few 
years before. In 1819 and 1820 the tide was at the low- 
est point, and the effects of the contraction were severely 
felt. The sales of public lands fell off; and many who 
had purchased were unable to pay, and the government 
was obliged to grant relief. The banks were in a preca- 
rious condition; for their issues were excessive, and the 
precious metals were fleeing to the East Indies. The 
banks could not do otherwise than contract their dis- 
counts in order to withdraw their notes from circulation, 
and thus prevent their presentation for payment, which 

i April 15, 1822, 3 Finance, p. 800. 



532 FINANCIAL HISTOEY OF THE UNITED STATES. [1817. 

would have caused immediate and general failure. " This 
operation, so oppressive to their debtors," Crawford de- 
clared, "was indispensably necessary to the existence of 
specie payments, and must be continued until gold and 
silver should form a just proportion of the circulating 
currency." The case required heroic treatment, which 
was applied ; but the patient was restored after long and 
severe suffering. 

When Crawford was at the head of the treasury de- 
partment, an interesting inquiry was raised in the Senate 
concerning the loans made by the government to banks 
and individuals. No very large sums were ever loaned ; 
but, from an early date, the notes of importers were some- 
times continued, and assistance in several instances was 
rendered to the State banks. Deposits were put in them 
in 1819 in order to enable them to fulfil their engage- 
ments. The government never lost any money by these 
transactions. 1 

Beside the legislation already described, for the more 
perfect ordering of the finances, other laws of similar 
design were enacted. The secretary of the Senate, and 
clerk of the House, were required to give security " for 
the faithful application and disbursement " of the public 
money received by them, and to keep the same in banks 
until they disbursed it. 2 Bonds were required of pursers 
for the proper discharge of their duties. 3 Congress en- 
acted that judges should deposit the money in their 
courts, or, subject to their order, in a branch of the United- 

i Crawford's Com. to the Senate, Feb. 27, 1823, 4 Finance, p. 265. 

2 Act, Feb. 23, 1815, 13 Cong., third session, chap. 51. 

3 Act, March 1, 1817, 14 Cong., second session, chap. 24. 



1819.] APPROPRIATIONS AND EXPENDITURES. 533 

States bank. Nor could it be drawn, except by their 
order. 1 The number and compensation of the clerks in 
the different offices were regulated. 2 After the 3d of 
March, 1819, the second auditor was required to receive 
and examine " all unsettled accounts arising out of Indian 
affairs," except those "appertaining to Indian trade ; " and 
the treasurer was required to disburse all the money or- 
dered for the use of the Indian department. 3 The duty 
was enjoined on the secretary of the treasury to carry to the 
account of the surplus fund any money appropriated for 
the war or navy department remaining unexpended after 
the object had been effected for which the appropriation 
was made. The war and naval secretaries were required 
to lay before Congress, annually, a statement of the appro- 
priations of the preceding year, — showing the amount 
appropriated under each specific head, the amount ex- 
pended, and the balance, — and to estimate the probable 
demand on each unexpended appropriation. Money re- 
maining unexpended in these departments, after two 
years from the date of its appropriation, was to be car- 
ried to the account of the surplus fund. The transfer 
of "any appropriation for the service of one year to 
another branch of expenditure in a different year," was 
no longer allowed, though the President, in a few cases, 
which were specified, was authorized to transfer appro- 
priations in the naval department. No contract was to 
be made by the secretaries of the several departments, 

1 Act, April 18, 1814, 13 Cong., second session, chap. 62. Act, March 3, 
1817, 14 Cong., second session, chap. 108. 

2 Act, April 20, 1818, 15 Cong., first session, chap. 87. 

3 Act, Feb. 24, 1819, 15 Cong., second session, chap. 43. 



534 FINANCIAL HISTORY OF THE UNITED STATES. [1820. 

"except under a law authorizing the same, or under an 
appropriation adequate to its fulfilment." Certain con- 
tracts, however, which were specified, could be made in 
the mode previously adopted by Congress. Every land- 
purchase was to be based on a law enacted for that 
purpose. The secretary of the treasury was required " to 
annex" to the annual estimates of appropriations a state- 
ment of those for the preceding year, the sums in the 
treasury (or in the possession of the treasurer as agent 
of the war and navy departments) remaining from the 
appropriations of former years, and to estimate the amount 
of the sums which would not be needed to defray the 
expenditures incurred in previous years ; more especially, 
to show the entire amount which might be applied to 
other purposes. 1 In 1820 an officer was appointed to 
collect money due from delinquent officials, and regula- 
tions were prescribed to guide him in conducting the 
business. 2 

At a later period Congress enacted that money remain- 
ing with the treasurer, as agent of the war and navy de- 
partments, should be repaid, under the direction of their 
respective heads, into the treasury. At the same time 
it was further enacted that all money appropriated for 
the use of the war and navy departments should be drawn 
from the treasury by warrants of the secretary of the 
treasury, issued on the requisition of the respective secre- 
taries of those departments, countersigned by the second 
comptroller, and registered by the proper auditor. 3 

1 Act, May 1, 1820, 16 Cong., first session, chap. 52. 

2 Act, May 15, 1820, 16 Cong., first session, chap. 107. 

3 Act, May 7, 1822, 17 Cong., first session, chap. 90. 



1835.] APPROPRIATIONS AND EXPENDITURES. 535 

No advance of public money was to be made in any 
case whatever. With respect to contracts for performing 
services or delivering articles, payment was not to exceed 
the value of the services rendered or articles furnished. 
Under the especial direction of the President, however, 
advances could be made to disbursing officers when neces- 
sary "to the faithful and prompt discharge of their re- 
spective duties, and to the performance of the public 
engagements." Quarterly returns were required of every 
officer or agent employed by the government. 1 

Such are the more noteworthy events which occurred 
while Crawford administered the finances. He was suc- 
ceeded by Richard Rush of Philadelphia, whose manage- 
ment of them at the time Adams was President was so 
easy, that nothing occurred worthy of note beside what has 
already been laid before the reader in other parts of this 
work. Rush's annual reports were very lengthy, compared 
with the concise reports presented by Crawford; and much 
space was given to the discussion of the tariff, always 
advocating the doctrine of protection. Crawford's utter- 
ances on the subject were very mild and guarded. Rush, 
in his last report, gave a concise account of the adminis- 
tration of the treasury department during his four years 
of office, which was one of the most prosperous quadren- 
nials in the history of the government. The debt was 
largely reduced, the expenditures were not excessive, and 
the financial legislation of the period was tempered with 
wisdom. 

The receipts had exceeded those of the four previous 
years by an average of twenty-four per cent : yet the 

1 Act, Jan. 31, 1823, 17 Cong., second session, chap. 9. 



536 FINANCIAL HISTORY OF THE UNITED STATES. [1829. 

increased expenditure, aside from the amount paid toward 
reducing the debt, had been less than ten per cent ; and 
this increase, too, was chiefly for internal improvements. 
Fourteen millions had been spent in this direction. Of 
the ninety-seven millions received into the treasury during 
these four years, all had been expended, except a small 
balance, without any embarrassment to the public service. 
Such efficient action, on the part of the government, was 
due in no small measure to the United-States bank. Rush 
paid a warm and just tribute to the efficiency and fairness 
of the bank ; nor did any successor forget to do the same 
thing, until President Jackson determined to destroy it. 

The secretary was justified in indulging in the following 
glowing retrospect: "The receipts of the existing year 
greater, by nearly two millions of dollars, than had been 
foreseen, with a prospect of income for the next scarcely 
less abundant , the receipts of the last four years present- 
ing a large and gratifying excess over those of the four 
years preceding ; the foreign commerce of the country in 
a state of solid prosperity, from the improving condition 
of its leading departments of industry at home, and conse- 
quent increase in the exportation of its products ; the 
increase of its tonnage (that foundation of naval strength, 
as well as commercial riches) keeping pace with the in- 
crease of commerce ; the public debt annually and rapidly 
decreasing under the application of surplus funds annually 
and rapidly increasing ; the public revenue preserved at 
an equal value in every part of the Union, through the 
power of transfers promptly made by the Bank of the 
United States, without expense or risk to the nation; and 
the currency maintained in a healthful state by the same 



185:9.] APPROPRIATIONS AND EXPENDITURES. 537 

institution, — such is the great outline of the financial 
and commercial condition of the country , a condition of 
the result of good laws faithfully administered, and of the 
aggregate industry of an enterprising free people." Such 
is the bright picture which Rush drew when closing his 
administration of the treasury office. 

In smooth, easy periods, history, like alluvial soil, is 
slowly made. It is not until men grow very wicked 
that human action becomes exciting, and the pages of his- 
tory are crowded with events. But if no dark shadow 
appeared while Rush was at the head of the treasury de- 
partment, was not the steady, mild shining of the sun of 
prosperity to be preferred to the more exciting events of 
earlier and later times ? 



538 FINANCIAL HISTORY OF THE UNITED STATES. [1829. 



CHAPTER XIII. 

APPROPRIATIONS AND EXPENDITURES. 
1828-1840. 

The twelve years covered by this chapter are marked 
by many extraordinary financial events. The country 
was ablaze with political excitement ; business was lifted 
high upon the shores of prosperity, from which, alas ! it 
was soon drawn back into a fearful abyss ; expenditures 
rose to a huge figure : yet so strongly infected was the 
legislative mind with the desire to continue them, that, 
long after the necessity for heavy retrenchment clearly 
appeared, the step was not taken. 

Jackson was President. In the beginning, things worked 
smoothly. Ingham, the President's first secretary of the 
treasury, remained two years at his post, encountering no 
dangerous snags. He was an active Pennsylvania politi- 
cian, and obtained the office through the influence of the 
friends of Mr. Calhoun. He had been a member of Con- 
gress for seven years, but had shown no special aptitude 
for finance. Though not the first choice of the President, 
he was acceptable to the various elements in his party ; 
and those who knew him best had no misgivings concern- 
ing his ability to perform successfully the easy duties 
then appertaining to the treasury office. The country 
smiled with prosperity; the revenues were ample; the 



1831] APPROPRIATIONS AND EXPENDITURES. 539 

public debt was rapidly lessening, which caused unmixed 
joy throughout the land. 

In 1828 the tariff on imports was raised. Confidently 
expecting the event would happen, importations were 
heavier, and the treasury was enriched. In 1831 the tax 
on salt was removed, and the duties on tea, coffee, and 
cocoa, were reduced. Still the revenue was abundant, 
and the affairs of the country were easily and successfully 
conducted. 

In the treasury report for 1831, which was made by 
Robert McLane of Delaware, the successor of Ingham, 
there was a noteworthy reference to the unsatisfied appro- 
priations for the year, and of the amount needed to meet 
them. To get a clear idea of the subject, a short explana- 
tion is necessary. 

Appropriations were made by Congress for each calen- 
dar year ; the fiscal year, at that time, beginning on the 
first day of October, and, of course, ending on the last day 
of the following September. When the secretary rendered 
his annual report, he gave an account of the actual re- 
ceipts and expenditures for the calendar year, and also an 
account of the estimated receipts and expenditures for 
the same period. For the first three quarters the actual 
receipts and expenditures could be given, but, for the last 
quarter, onty an estimate, as the accounts were not closed 
until the end of the year. But with the expiration of the 
calendar year the expenditure of money for that year did 
not cease : on the contrary, there were always future 
expenditures which were chargeable to it. These might 
amount to several millions or only a small sum. In mak- 
ing estimates of the receipts and expenditures, the secre- 



540 FINANCIAL HISTORY OF THE UNITED STATES. [1831. 

taries of the treasury did not take these expenditures into 
account until the time of McLane, who, in his report for 
1831, announced that the unsatisfied appropriations for 
that } T ear were estimated at $4,139,823.13. The reason, 
doubtless, why his predecessors had not considered them, 
was, at the end of every year the same state of things 
existed : consequently, if a balance remained at the end of 
1831 to be paid the next year, so, at the end of 1832, there 
would probably be an unpaid balance equally large ; in 
other words, there was an unpaid balance running all the 
time, the omission to take account of which, thus far, had 
not disturbed any calculations in making further estimates 
of revenue and expenditure. 

Usually, if an appropriation was not expended within 
two years, it fell into the sinking-fund, and could not be 
used unless re-appropriated. But when a contract was 
made, based on an appropriation of money, like the build- 
ing of a ship, the appropriation did not fall into the 
sinking-fund, even though two years had expired after 
making it. There were many cases, too, like those of 
vessels on long cruises, in which appropriations could not 
be settled within the regular period; so that a charge 
which properly belonged to the year 1831 could not be 
entered for several years afterward. 

A clearer and more accurate idea of the national expen- 
ditures would have been presented if the secretary of the 
treasury, in every annual report, had described the amount 
of unsatisfied appropriations, and the nature of them. 
Then it would have appeared what portion of the money 
appropriated, but not expended, it was absolutely neces- 
sary to expend to fulfil the engagements already con- 



1831.] APPROPRIATIONS AND EXPENDITURES. 541 

tracted (except in the case of ships at sea, which were 
unable to make returns), and what portion could still be 
diverted to other purposes by Congress, if necessary, 
without impairing any obligation. 

The public debt at this time was nearly extinguished : 
consequently a reduction of the duties could be safely 
made. There were two ways of making them : one 
way was to extend the free list in respect of those things 
which were not produced here ; and the other was to 
reduce the duties on all things without reference to the 
situation of the domestic producer. The former way was 
advocated by those in favor of governmental protection 
to the manufacturing classes, and the other was advocated 
by their opponents. 

Many, however, entertained the opinion, now that the 
national debt was nearly paid, that expenditures in sev- 
eral ways ought to be considerably augmented. Ale Lane 
voiced this opinion when he affirmed that there were other 
objects of expenditure of obvious expediency, if not of 
indispensable necessity, which it might be supposed had 
been postponed by the higher obligation of paying the 
public debt. The present occasion, he added in his report 
for 1831, was deemed propitious to provide for these 
objects in a manner to advance the glory and prosperity 
of the country without inconvenience to the people. 

Beside the usual expenditures, he recommended appro- 
priations for augmenting the navy and army, improving 
the armories, arming the militia of the several States, in- 
creasing the pay and emoluments of the navy officers to 
an equality with those of the army, and providing them 
with the means of nautical instruction, enlarging the navy 



542 FINANCIAL HISTORY OF THE UNITED STATES. [1831. 

hospital fund, strengthening the frontier defences, remov- 
ing obstructions from the Western waters, also for mak- 
ing accurate and complete surveys of the coast, and 
improving the coast and harbors in order to afford greater 
facilities to the commerce and navigation of the United 
States. He added, moreover, that the occasion was favora- 
ble for constructing custom-houses and warehouses in the 
principal commercial cities, in some of which they were 
indispensably necessary for the purposes of revenue, the 
permanent accommodation of the courts of the United 
States and their offices. There was need, too, he con- 
tended, of increasing the compensation of the officers of 
the customs, and the salaries of foreign ministers. An 
extension of the public buildings at Washington was also 
recommended, as well as further provision for the officers 
and soldiers of the Revolution. From this time onward 
the expenditures for many of these objects were enlarged. 
The revenues were copious ; and during the first term of 
President Jackson's administration, notwithstanding the 
branching-out in modes of expenditure, there was not 
much wastefulness, except in the post-office department. 

Mutterings were heard, though, of a storm which was 
to sweep over the country with the swiftness and violence 
of a tornado, and from the effects of which the country 
was to suffer for many years. The President had deter- 
mined to remove the deposits from the United-States 
bank, and to prevent a renewal of its charter. No other 
President had ever taken such an active part in the man- 
agement of the fiscal affairs of the country. Former 
Presidents had, indeed, expressed their views in official 
messages, and vetoed bills which were deemed not con- 



\. 



1835.] APPEOPEIATIONS AND EXPENDITURES. 543 

ducive to the public welfare ; but Jackson did not stop 
here. He proposed to remove the deposits, and destroy 
the bank ; and he was not content until he had accom- 
plished his purpose. His course was not affected in the 
least by the fact that the majority of Congress differed 
from him. Having decided, he proceeded to execute his 
decision. His imperious will knew no restraint, and 
suffered but few defeats. Never for a moment did he 
think of going wrong, any more than did Apollo of send- 
ing his shafts awry. 

It was while serving his second term that the first 
investigation into the administration of any department 
of the government occurred, bringing to light serious mis- 
management of the public business ; but the investigation 
of the post-office department, which was undertaken by 
the party in power, and by whom it had been managed 
during the period covered by the investigation, revealed a 
sorry state of things. Henry A. Wise of Virginia was 
chairman of the committee, whose conclusions were em- 
bodied in the form of resolutions, portions of which we 
will lay before our readers. 1 

1 'The finances of this department have hitherto been man- 
aged without frugality, system, intelligence, or adequate public 
utility. Expenses have not been kept within the limits of 
income. Means have not been proportioned to the ends sought 
to be attained ; expenditures, to the benefits to be purchased. 
The records of the department in this vital particular have not 
been kept with method and accuracy, for the data they furnish 
conduct to widely varying results. The accounts of the re- 
ceipts, expenditures, and losses of the department, do not, in 
i Feb. 13, 1835, No. 103, 23 Cong., second session. 



544 FINANCIAL HISTORY OF THE UNITED STATES. [1835. 

fact, illustrate with certainty the actual fiscal condition of the 
department. 

" The negligent and unsystematic form of making and 
preserving mail contracts is such that no human mind can 
comprehend the whole, and maintain in order so vast and com- 
plicated a machine as the general post-office. The contracts 
are now, and have at all times which have fallen under the 
observation of the committee been, most loosely constructed. 
It is occasionally impossible to penetrate their obscurity, often 
difficult to decipher their interlineations and marginal notes, 
and always to be doubted whether they are so framed and exe- 
cuted as to be available in law. Knowledge, if acquired, is to 
be obtained rather from those who keep the books than from 
the books themselves; and the consequence is, that the loss of 
the book-keeper is the extinction of all certain light. 

' ' The mode of preparing advertisements for mail contracts 
has practically inverted the ends of the law which enjoined 
it. The practice of granting extra allowances has at various 
dates in the history of this department run into wild excesses, 
— some illegitimate, and therefore without an apology ; and 
others legitimate, but very questionable as to their expediency. 
Among its other achievements, it has signalized most emi- 
nently the too ready faith and too loose business method of the 
department. The letter of a contractor, suggesting an improve- 
ment, and soliciting an extra allowance, not infrequently has 
served the double office of an authority for the grant, and of a 
record of its existence. Some dark corner of a contract, or 
loose scrap of paper, is commonly the only official evidence of 
the order for large disbursements of money, under the name of 
extra allowances. It is a puzzling problem to decide whether 
this discretionary power, throughout its whole existence, has 
done most mischief in the character of impostor upon the 
department, or seducer to contractors." 



1835.] APPROPPvIATTONS AND EXPENDITURES. 545 

The committee did not attempt to ascertain how much 
the government had lost from banishing economy, and by 
fraudulent management of the postal department. The 
people were shocked by the revelation; yet it was only 
the prelude to a long chapter of shameful misgovern- 
ment, passages from which will soon be put before the 
reader. 

Although the duties had been diminished by the tariff 
Act of 1833, the payment of the public debt had cut the 
expenditures so low, notwithstanding their enlargement 
in several ways, that the revenue accumulated in the 
treasury. The chief cause of the accumulation was the 
sale of public lands. In the beginning, this portion of 
the public revenue was pledged for the payment of the 
debt, and the pledge was faithfully observed. When 
Gallatin was at the head of the treasury department, he 
matured a plan for selling the public lands which was fol- 
lowed for many years. Though a steady stream of money 
flowed into the treasury from this quarter, it was not 
large until the era of speculation in the days of Jackson. 
The sales were never one million acres a year until 1815. 
During the period from 1816 to 1819 the income from the 
sales amounted nearly to thirty million dollars : during 
the next three years, however, the sales hardly exceeded 
four millions. The rise in the price of cotton from twen- 
ty-six to thirty-four cents per pound induced larger pur- 
chases; exceeding two million acres in 1817, and more 
than five and a half million acres two years afterward. 
By the fall of nearly half in the price of cotton in 1820, 
combined with other causes, land-purchasers were left in 
debt to the government over twenty-two million dollars ; 



546 FINANCIAL HISTORY OF THE UNITED STATES. [1835. 

and, with a change from the credit to the cash system, 
sales were reduced to much less than a million acres an- 
nually. In 1821 purchasers were so troubled to discharge 
their obligations, Congress provided, that, instead of pay- 
ing the balances due, they might acquire, if they desired, 
an absolute title to a portion of the land purchased, 
which should be determined by the price and the amount 
paid thereon, on condition of relinquishing their owner- 
ship to the remainder. 1 Nearly six million acres reverted 
to the government ; and the sales fell below a million acres 
yearly until the rise of cotton in 1825, which gave a new 
impulse to land-buying. Aided by other powerful causes, 
the sales gradually enlarged until they exceeded a million 
acres, in 1829. Afterward they swelled more rapidly; 
amounting to 3,856,227 acres in 1833, and 4,658,218 acres 
the following year. 2 

In the next two years 32,639,348 acres were sold. 
These were surprising figures. In 1837 the sales fell to 
5,601,103 acres. 3 In the last three years they had been 
larger than for the forty-five years which had elapsed since 
the adoption of the Constitution. With this unexpected 
addition to the receipts, a large surplus accumulated in 
the treasury. 

Yet appropriations were granted on a very enlarged 
scale. Some were permanent: others were temporary. 

1 Act, March 2, 1821, 16 Cong., second session, chap. 12. Crawford's 
Com. to Senate, March 27, 1818, 3 Finance, p. 263. 

2 Walker said in 1845 that the average annual sales had "been much less 
than two million acres, yet the aggregate net proceeds of the sales in 1834, 
'35, '36, and '37, were $51,268,617.82. See Cambreling's Report from Com. 
of Ways and Means, July 1, 1836, No. 851, 24 Cong., first session. 

3 Johnson's valuable report on Relief of the States, No. 296, 27 Cong., 
third session. 



1836.] APPROPRIATIONS AND EXPENDITURES. 547 

Of the former kind were additional grants for legislative 
purposes, the gradual augmentation in appropriations for 
the judiciary and the salaries of district judges, the new 
bureau of the solicitor of the treasury, the corps of 
mounted dragoons in the army, an increased number of 
army and navy officers to whom a larger compensation 
was granted, and extra compensation to officers of the 
customs after the reduction of the tariff. The chief new 
items of temporary expenditure were an increase for ex- 
tinguishing Indian titles and grants of Revolutionary pen- 
sions, the payment of the Virginia commutation claims, 
large additions to lighthouses and custom-houses, the 
opening of many new roads in the Territories, continua- 
tion of the Cumberland road, improving navigation, and 
other expenditures of a similar nature. 

Notwithstanding these expenditures, the available bal- 
ance in the treasury on the 1st of January, 1836, beside 
all outstanding appropriations, was about ten and a half 
millions. "An unprecedented spectacle was thus pre- 
sented to the world, of a government, not only virtually 
without any debts and without any direct taxation, but 
with about one-fourth of its whole annual expenses de- 
frayed from sales of its own unencumbered and immense 
tracts of public lands, and no resort to even indirect tax- 
ation necessary, except for the other three-fourths; and 
the proceeds of that taxation, though largely and fre- 
quently reduced, yet accumulating so fast as to require 
further legislation to dispose of or invest a considerable 
surplus on hand. Whether this state of enviable prosper- 
ity be justly attributable to the form of our government, 
to the administration of it, to the character of our people, 



548 FINANCIAL HISTOEY OF THE UNITED STATES. [1837. 

to the physical advantages of our country, or to all com- 
bined, it was a matter of strong congratulation," said the 
secretary of the treasury, " and exhibited a very remark- 
able phenomenon in the history of taxation and finance. 
Without dwelling on these primary causes of our fortunate 
condition, or discussing any secondary ones, such as the 
great demand and reward in this country for either labor 
or capital, the more appropriate inquiry under these novel 
circumstances seemed to be to discover the most judicious 
course to pursue in using this surplus, and in preventing 
and regulating its future accumulation." Woodbury then 
proceeded to consider modes for disposing of the surplus. 
One mode was to extend the system of internal improve- 
ments. He also considered the expediency of reducing 
the revenues. Nothing was done at that session ; but the 
next year, when Congress met, the surplus had risen to a 
very large sum, and there was an elaborate discussion 
respecting it. Finally it was decided to invest all beside 
the sum of five millions in the treasury on the 1st of 
January, 1837, with the States, in certain proportions, 
determined by their population. The balance thus ap- 
plicable at the time fixed was 137,468,819.97, one-quarter 
of which was to be paid at the end of every third month. 1 
The first three quarters were promptly paid; but, 
before the fourth was payable, a fierce financial storm 
swept over the country, reckoning-day had suddenly come, 
and the nation sorrowfully realized that it owed many 

1 Woodbury remarked with reference to this distribution, in his annual 
report at the end of 1839, that it tempted the States in several instances to 
new and unprofitable enterprises, and stimulated delusive hopes of still 
further distributions. 



1837.] APPftOPKIATTONS AXD EXPENDITURES. 549 

millions abroad for imported goods, with nothing to pay 
for them. Credit, which had been blown into enormous 
dimensions by the State banks, quickly vanished ; nearly 
all these institutions which had been so carefully keeping 
the government deposits failed ; and the merchants who 
owed many millions for duties were unable to pay. The 
treasury, which shortly before had been so gorged with 
money that it could find no way to spend it, and had 
been emptying its treasures into the State laps, suddenly 
found itself on the verge of bankruptcy. And all these 
things happened within nine months from the time when 
a surplus of more than forty millions was lying in the treas- 
ury. What a humiliating position ! The government 
could no longer think of paying any more to the States : 
the question was, how could the ship of state be shoved 
off from the rocks where she was so badly thumping. 

Congress convened the 4th of September, 1837, and 
the secretary of the treasury rehearsed the dismal story. 
The receipts had rapidly shrunk. Not only were the im* 
ports less, but payment of duties already due was deferred 
in compliance with the wishes of the importers, most of 
whom were embarrassed. The secretary reminded Con- 
gress, that, before submitting his last annual report, he saw 
indications of a decrease in the receipts, and of an ap- 
proaching revulsion in our commercial prosperity, and for 
this reason estimated the accruing receipts for the year at 
only twenty-four million dollars. " As the appropriations 
asked for were about twenty-seven million dollars, it was 
then suggested that the occurrence of a deficiency was 
probable. When those appropriations became, in fact, 
enlarged by Congress to more than thirty-two million 



550 FINANCIAL HISTORY OF THE UNITED STATES. [1837. 

dollars, it rendered a deficiency inevitable to the extent 
now anticipated, unless the receipts should happen greatly 
to exceed the estimates," — an event which did not occur. 

Of course, the secretary could not pay the last instal- 
ment of the deposit due to the States. On the other 
hand, he declared " there would probably be a necessity 
to resort to the deposits now with the States, and to the 
instalments destined for them in October, or to some 
other resource, for a sum equal to ten million dollars." 
Such was the melancholy condition of the treasury. How 
sudden and great was the change from overflowing abun- 
dance ! 

What were the measures proposed and adopted to extri- 
cate the treasury from the mire ? First, Congress enacted 
a law authorizing the secretary of the treasury to with- 
hold the payment of the fourth instalment of the deposit 
to the States ; a secondly, importers were given more time 
to pay their bonds ; 2 thirdly, treasury-notes were author- 
ized for a sum not exceeding ten million dollars in antici- 
pation of the revenues. 3 The secretary proposed the 
issue of two kinds, the latter bearing interest, and the 
former not. A few years afterward, treasury-notes were 
issued, bearing an insignificant rate of interest ; but the 
action of the secretary of the treasury in issuing them 
was condemned as unconstitutional. But Congress did 
authorize the issue of notes carrying six per cent interest ; 
and with this aid the government was able to discharge 
its obligations. 

1 Act, Oct. 2, 1837, 25 Cong., first session, chap. 1. 

2 Act, Oct. 16, 1837, 25 Cong., first session, chap. 8. 

3 Act, Oct. 12, 1837, 25 Cong., first session, chap. 2. 



1837.] APPROPRIATIONS AND EXPENDITURES. 551 

The wisdom of providing for the early and final re- 
demption of these notes was not clearly and strongly set 
forth, as it should have been, by the secretary of the 
treasury, when recommending their issue. He recom- 
mended, that, when the money on hand available for 
public purposes exceeded a given amount (four or five 
millions), the excess ought to be applied toward redeem- 
ing these notes, unless they should be needed to defray 
current expenses ; but Congress simply declared that they 
should be payable one year from date, and should not 
bear interest beyond that time. 

The banks having suspended specie payments, a very 
perplexing question arose with respect to receiving their 
notes for debts due to the government. Although specie 
was the best standard, " and the only one contemplated 
by the constitution," Hamilton, very early in the history 
of the government, issued an order to the collectors of 
public money, authorizing them to receive bank-notes in- 
stead of specie ; but with improvements in communica- 
tion, increased facility in exchanges, and diminished dis- 
tance between points of collection and expenditure, the 
use of notes to aid in public transfers became unneces- 
sary. Most of the duties on imports were discharged in 
•checks on the bank where the bonds were deposited for 
collection, or in its own notes* and very infrequently in 
those of banks at any distance-; consequently not much 
embarrassment had ever arisen in paying duties with 
bank-notes. In accepting them for lands, however, the 
situation of purchasers and receivers was so remote, that 
difficulties frequently occurred ; and the regulations about 
receiving them were changed when the United-States bank 



552 FINANCIAL HISTORY OF THE UNITED STATES. [1837. 

and its branches, and also the State banks, were em- 
ployed as depositories. In the mixed system of currency 
that now prevailed, and which was everywhere interwo- 
ven with the business of the country, it was very incon- 
venient entirely to avoid, and occasionally dangerous to 
permit, taking the bills of any State bank for lands ; and 
the receipt of such notes was necessarily restricted, or a 
risk was incurred of making many imperfect arrange- 
ments, and causing some injuries to the treasury. 

The secretary prescribed various remedies, one of which 
was that certificates not bearing interest, but payable in 
specie to the bearer or to order, and receivable for all 
public dues, should be authorized, and given in payment 
to the public creditor whenever preferred by him, and 
sufficient specie existed in the treasury. " This kind of 
paper," he declared, " would be very convenient in form, 
and would differ little from the drafts now in use on 
banks, except being drawn on a known specie fund, and 
expressing on its face not only this, but its being receiva- 
ble in the first instance for all public dues. It would 
possess the highest credit attainable in society." Several 
other remedies of a similar nature were mentioned. 

Congress declined to legislate. After the suspension 
of specie payments, no bank-notes were received by the- 
government not redeemable in specie. The secretary 
having declared that he should not change his policy in 
this regard, unless Congress otherwise ordered, that body 
left him alone to guide the treasury through these per- 
plexing obstacles, doubtless believing they could render 
no real assistance. 

The public revenues now fluctuated in a most astonish- 



1837.] APPROPRIATIONS AND EXPENDITURES. 553 

ing manner. Not only were those from land enormously 
diminished, but also those from imports. Well might 
Woodbury remark, in his annual report for 1836, of " the 
intrinsic difficulties in attaining much certainty concern- 
ing them during crises of overaction and revulsions like 
the past and the present." 

In that report he repeated several recommendations 
which merit brief mention in this place. 

First, That contingent authority be given to some 
appropriate officer to invest safely any considerable sur- 
pluses which should casually occur in the receipts beyond 
the expenditures, and to dispose of such investments when 
deficiencies might happen requiring it. 

Secondly, That limited power be granted to issue treas- 
ury-notes for temporary purposes when deficiencies hap- 
pened and no surpluses existed, and to redeem them as 
soon as there was a surplus in the treasury. Beside 
other obvious reasons in favor of such a regulation, it 
would enable the department to administer the finances 
with at least two or three millions less in the treasury 
than would otherwise be needed. 

Thirdly, That the additional duties of general deposito- 
ries be imposed on all receivers and collectors of public 
money, officers of the mint and its branches, and the 
treasurer. 

Fourthly, That permission be given to receive payment 
in advance for the public lands at such places as the 
treasury department might appoint. 

Fifthly, The extension of the warehouse system, and 
the requiring of all duties to be paid on imports when 
they were taken therefrom for consumption. This change, 



554 FINANCIAL HISTORY OF THE UNITED STATES. [1837. 

though less urgent, Woodbury declared, was very desira- 
ble in respect of the collection and security of the most 
important portion of the public revenue. 

There was, indeed, great need for adopting some of these 
recommendations. The country owed nothing to absorb 
a surplus, if any should accrue. Nor was there an ade- 
quate supply of banking institutions to provide a sound 
circulating medium for the needs of business, or to com- 
mand the general confidence in their ability to keep, 
disburse, and transfer the public funds in a satisfactory 
manner. Daily did the secretary realize the difficulties 
of conducting the business of the treasury without these 
•agencies ; but Congress disregarded his recommendations. 

What, indeed, could be plainer than that the govern- 
ment, while the present system of public revenue existed, 
— which worked so fitfully, that, in 1834, twenty-one 
million dollars were collected, and two years later more 
than twice as much, and the year afterward only nineteen 
million dollars, — required a reservoir for retaining the 
excess of revenue during years of plenty, in order to draw 
therefrom in times of financial drought? The subject was 
discussed, but no plan was adopted. The investment of 
a part of the surplus in State stocks, in the mode success- 
fully practised with respect to money belonging to the 
Indians, had been recommended by the secretary of the 
treasury in 1836. Congress preferred another plan. This 
was to deposit the surplus with the States for safe keep- 
ing, investing the secretary of the treasury with power to 
recall it whenever he pleased. It was kept there so safely, 
that the very next year, when the necessity arose for de- 
manding it, Congress passed an Act forbidding the secre- 



1838.] APPROPRIATIONS AND EXPENDITURES. 555 

taiy from making such a request. Instead of recovering 
this money, which was at first intended to be merely a 
deposit with the States, Congress authorized the issue of 
treasury-notes. The payment of the fourth instalment 
of the deposit was deferred from time to time, and finally 
was prohibited. Authority to sell the bonds of the United- 
States bank was next given. 

These measures were very inadequate. Woodbury re- 
minded Congress, at the close of 1838, that since the 
extinguishment of the national debt, and within the last 
three years, the policy of Congress had been to avoid a 
large balance in the treasury immediately available, which, 
if unemployed for the public service, was regarded as 
taken from the circulation of the country, and in some 
degree hoarded, though deposited in banks which made 
the public money the basis of enlarged operations. There 
was need of a system whereby the government could get 
money whenever the payments exceeded the receipts. 
How fluctuating both were, Woodbury well illustrated by 
the events of that year. In January the expenditures 
were about 11,800,000, and in May only $2,242,000; 
but in July they exceeded 14,500,000, — an increase, in a 
single month, of nearly two millions and a third, or more 
than enough to sweep off in thirty days the whole balance 
on hand. Consequently, at any period, with only a million 
or two in the treasury, and with receipts of less than two 
millions monthly, it was obvious that the public engage- 
ments could not all be punctually met, unless some power 
should exist to provide for calls so unequal in different 
portions of the year, and also in different years. 

Congress very tardily prescribed a remedy. The 



556 FINANCIAL HISTORY OF THE UNITED STATES. [1838. 

independent treasury was finally established: but, in doing 
this, one of the principles for which Congress contended 
was overthrown; namely, the keeping of the largest 
amount of the public funds possible in circulation. The 
establishment of the independent treasury took the largest 
amount possible from those channels : indeed, it took all 
except the sums actually required for making payments. 
The only way devised, of providing sufficient funds to pay 
the debts of the government, was to issue treasury-notes 
when there was a dearth of income. 

Notwithstanding the enormous shrinkage in revenues, 
public expenditures were reduced very slowly. In every 
annual report, Woodbury pleaded for a reduction. It is 
true, his words did not have the ring of Dallas. They were 
feeble, yet the need for the practice of greater economy 
was evident without special pleading by any one. The 
blindest legislator knew how heavily the revenues had 
shrunk, and hence the need there was of retrenchment in 
the public expenditures. But however pressing the need, 
Congress acted slowly in retrenching. They were re- 
duced somewhat; but Woodbury, cautious as he was, 
declares in his final report that he had " earnestly urged a 
more rapid reduction." When the debt was paid, as we 
have seen, Congress raised the gates of expenditure much 
higher ; and, having once set the flood loose, barriers could 
not be easily placed before it. 

Bad enough were these things : but still worse had 
happened ; for corruption, foul and universal, was poison- 
ing almost every branch, twig, and leaf of the public 
service. Certainly in no former period, and in no 
subsequent one, has such a vast mass of corruption in 



1838.] APPROPRIATIONS AND EXPENDITURES. 557 

conducting the public business been discovered. Every 
thing, almost, undertaken by the officers of the govern- 
ment, was saturated with it. Every contract and appro- 
priation seemed tainted with fraud. It would require too 
much space to describe these things, yet we must briefly 
touch on some of them. 

Woodbury himself was not a partner in these frauds ; 
although some of them were committed so near to him, that 
one cannot help inquiring why he did not discover them. 
It may be that he knew, but could not screw himself up 
to the point of interfering. He was neither a reformer, 
nor a believer in drastic remedies. Though a very indus- 
trious official, he lacked both conviction and courage, and 
failed utterly to apply strong correctives when they were 
needed. He was not an Alberoni, to stamp out bravely 
and unflinchingly the dishonesty perpetrated around him. 
He seemed rather to partake of the spirit of the states- 
men during the time of Louis XV., who looked out well 
for themselves, expecting afterward the deluge ; for Wood- 
bury knew well enough that the storm would come. Un- 
happily for him, it came before his term of office expired. 

There were many who boldly tried .to stem the evil 
tide. They clearly depicted the evil consequences that 
would inevitably happen, but they cried as though in a 
wilderness. Their voices were not heard. In the might}- 
roar for public plunder, those engaged therein thought 
but little of the future ; and they were powerful enough 
to persuade the leaders generally to remain silent. But 
the plunderers were few compared with the whole number 
of the people ; and, however great might be " the cohesive 
power of public plunder " among the former class, it could 



558 FINANCIAL HISTORY OF THE UNITED STATES. [1838. 

not dazzle the plundered : so, at last, reckoning-day came ; 
and it revealed a scene of thoroughly organized corrup- 
tion, on the part of public officials, hitherto unparalleled. 

Officers who had resigned from the army and navy were 
re-instated several years afterward, and drew full pay for 
the period when they were not serving the government. 1 
Young men were sent abroad professedly to study at the 
cavalry school in Namur, France, but really to travel at 
public expense , and the law forbidding the payment of 
any extra compensation whatever, to military officers who 
should serve the government in any other capacity than 
a military one, was violated. The secretary of war, Poin- 
sett, sinned knowingly and wilfully in allowing extra com- 
pensation for services thus rendered. The expenses of 
the Florida war vastly exceeded all calculations in con- 
sequence of the frauds practised in transporting troops, 
building and buying boats, and in other ways. The his- 
tory of this chapter of public misdeeds was sorrowfully 
read by the people. The final act in the sad story of the 
removal of the Florida Indians was disgraceful in the 
extreme. 2 The secretary of war was a guilty actor in 
swelling enormously the expenses of their removal, after 
the contract for performing the service had been made, 
and at a high figure, too, which would have amply re- 
warded the contractors. The contingent expenses of the 
House during the twenty-third and twenty-fourth Con- 
gresses, for stationery and the like, were largely increased, 
no small portion thereof going into the pockets of the 
editor of " The Democratic Review " to pay for engraving 

1 Report No. 459, 27 Cong., second session. 

2 Report No. 288, 27 Cong., third session. 



1838.] APPROPRIATIONS AND EXPENDITURES. 559 

steel plates of distinguished democratic statesmen. The 
result of the investigation of the Xew-York custom-house 
was shocking to many. The investigation was conducted 
by a commission, who reported to the secretary of the 
treasury. The House committee on public expenditures 
sent a letter to him for the report as soon as it was com- 
pleted, but there was no answer. Then the House ordered 
the secretary to send the report, but he did not heed the 
order. The committee then called on the secretary, but 
received no reply to their inquiries concerning the docu- 
ment. Finally they called on Poindexter, one of the 
commissioners, to submit the result of his investigations 
to the House, with which request he complied. Having 
examined it, the committee declared, " It is believed that 
the wickedness of public officers here exposed is unparal- 
leled in the history of any civilized government." a 

Useless offices were multiplied. The origin of many of 
these is interesting. A new duty, perhaps, was imposed 
on a legally constituted officer, who appointed an agent to 
perform it. The latter was paid from a contingent fund, 
or by a specific appropriation. This practice was contin- 
ued for a time. Then the salary of the agent, by design or 
accident, was incorporated into an appropriation bill ; and 
thus a sort of half-legal existence was given to the office, 
while the officer continued to hold it long after the object 
for which he was appointed had passed away. 

Many public buildings were erected during this period. 
In the beginning, Congress enacted that the entire sum 
for building them should not exceed a certain figure ; but 
the enactment was speedily forgotten, and appropriations 

1 Report, April 28, 1842, No. 669, 27 Cong., second session. 



560 FINANCIAL HISTORY OF THE UNITED STATES. [1838. 

were made from year to year, even after the plethoric 
condition of the treasury had ceased. The superintend- 
ent of the branch-mint at Charlotte, N.C., proposed to 
make himself as comfortable as possible ; and so he built, 
at public expense, an ice-house, a summer-house, and a 
bath-house. A committee who investigated the matter 
remarked, that, not perceiving the connection these build- 
ings had with coining gold, they were forced to the con- 
clusion that the branch-mint in its operations had added 
more to the comfort of the superintendent than to the 
promotion of the public good. It is true, that, when the 
account reached the treasury department, it was sus- 
pended for examination. " It seemed a little too large ; " 
but, when the secretary learned from the superintendent 
that what he had done was "an error of honest patriot- 
ism," the explanation was satisfactory, and the account 
was allowed. 1 

During Van Buren's administration a large sum of 
money was spent in furnishing the White House ; and 
the law requiring that all furniture purchased for it, 
so far as practicable, should be of American or domestic 
manufacture, was grossly violated. Enormous quantities 
of mail-bags and other supplies for the post-office depart- 
ment, greatly in excess of the wants of the government, 
were ordered at high prices as a reward for political ser- 
vices during the presidential campaign of 1836. 2 During 
the Indian wars the officers of the army received higher 
pay in the way of commutation for fuel and quarters, 
though there was no authority to justify such an increase 

1 Report No. 18, 26 Cong., second session. 

2 Report No. 989, 27 Cong. , second session. 



1839.] APPROPRIATIONS AND EXPENDITURES. 561 

by the secretary of war. 1 President Jackson, too, sinned 
in the same manner by increasing the salary of the com- 
missioner of public buildings ; and Van Buren continued 
the practice until 1839, when Congress finally accumu- 
lated enough virtue and courage to prohibit him from 
paying the commissioner any more than the law specified. 2 
Amos Kendall, the postmaster-general, sent George Piatt 
to Europe to get information relating to the postal sys- 
tems of various countries. His salary was two thousand 
dollars, and sixteen dollars and eighty-eight cents per day 
were allowed for expenses. He was gone four hundred 
and fifty-seven days, and doubtless enjoyed his trip better 
than many others did the history of it. There was no au- 
thority for sending him, — no appropriation had been made 
for the purpose ; but Kendall, who was one of President 
Jackson's devoted adherents, persuaded the President to 
order a transfer of eight thousand dollars from another 
appropriation to the appropriation for "mail depreda- 
tions and special agents," under which head the account 
was paid. A committee of investigation declared there 
was no excuse for such an abuse of power, and wanton 
waste or misapplication of the public money : there were 
no services rendered in obtaining information which could 
not have been performed by the regularly authorized 
ministers of the United States in the countries through 
which Mr. Piatt travelled. 3 

There was a very elaborate investigation into the ad- 
ministration of the executive departments in the winter 

1 Report No. 288, 27 Cong., third session. 

2 Report No. 460, 27 Cong., second session. 
8 Report No. 487, 27 Cong., second session- 



562 FINANCIAL HISTORY OF THE UNITED STATES. [1837. 

of 1837. The resolutions were introduced into the House 
by Henry A. Wise of Virginia. 1 

The committee organized, and sent two resolutions to 
President Jackson, which evidently made his ears tingle, 
judging from his subsequent conduct. The first resolved 
that "the President of the United States be requested, 
and the heads of the several departments be directed, to 
furnish this committee with a list or lists of all ofiicers, or 
agents, or deputies, who have been appointed, or employed 
and paid, since the 4th of March, 1829, to the 1st of 
December last (if any without authority of law, or whose 
names are not contained in the last printed register of 
public officers, commonly called the Blue Book), by the 
President, or either of the said heads of departments 
respectively, and without nomination to, or the advice 
and consent of, the Senate of the United States; show- 
ing the names of such officers, agents, or deputies, the 
sums paid to each, the services rendered, and by what au- 
thority appointed and paid, and what reasons for such 
appointments." The second resolution further declared 
that the various executive officers, in replying to the fore- 
going resolution, " be requested, at the same time, to fur- 
nish a statement of the period at which any innovations 
not authorized by law (if such exist) had their origin, 
their causes, and the necessity which has required their 
continuance." 

The reader who is acquainted with the character of 

President Jackson may readily divine how he treated 

these resolutions. He replied very sharply, refused to 

comply with the request of the committee, and left them 

1 Report No. 194, 24 Cong., second session. 



1836.] APPROPRIATIONS AND EXPENDITURES. 563 

to grope for the information desired as best they could. 
Nevertheless, they did uncover a sickening state of things. 
The presidential office had been debased to low ends, and 
its dignity had been destroyed ; while the integrity of its 
occupant, which hitherto no one had questioned, was now 
impaired. 

Between 1820 and 1829 the average annual expendi- 
ture for maintaining the government, beside paying the 
interest and principal of the debt, was thirteen million 
dollars ; but, from the latter period to 1838, the average 
rose to thirty-two million dollars. While a large portion 
of this increase was wise and honest, yet, as we have 
shown, fraud stalked around with gigantic strides in many 
shapes. At no previous or subsequent period have de- 
faults been so frequent, or the losses to the government in 
proportion to the receipts so great. Many of these might 
have been avoided had the secretary of the treasury 
required disbursing officers to render their accounts quar- 
terly, in conformity to the law. The guilt of an officer 
who had taken a small sum would then have been ex- 
posed, and the opportunity of taking more would have 
been denied to him. But, by permitting him to make his 
returns when he pleased, the way was clear for defraud- 
ing the government of a large amount. No wonder that 
many profited in consequence of the neglect of the secre- 
tary to enforce a wise law, by robbing the government. 

The money squandered for improving rivers and har- 
bors was very great. The Committee of Ways and Means 
in 1836, in reviewing the history of these appropriations, 
criticised the " system as expensive and yet feeble, fluctu- 
ating and yet uncertain, in all its operations and results, 



564 FINANCIAL HISTOEY OF THE UNITED STATES. [1836. 

unless it be viewed only with reference to its fitness to 
the purposes of the individual wealth and profit of the 
agents and contractors immediately concerned." They 
further said of these undertakings, "In most of them a 
very wide result from the original estimates has been 
already exhibited, and without furnishing a certain accom- 
plishment of the object desired in any single case." * Nor 
were the appropriations subsequently made for this pur- 
pose rooted in greater wisdom. No public expenditure at 
any time has yielded such meagre and unsatisfactory 
results. 2 

1 Reports, No. 297, 24 Cong., first session; No. 175, 24 Cong., second 
session. 

2 A committee on public expenditures reported, in 1842, concerning the 
expenditures of this period. They affirm "they are satisfied that extrav- 
agance of the most wilful character has squandered the public money, 
and that no efforts seem to have been made, by tbose who possessed the 
power, to prevent it. The acts and accounts of contracting and disbursing 
officers appear to have passed the scrutiny of those entitled to demand 
accountability, if clad in the mere forms of law, upon no higher evidence 
than that of the agent who performs the deed that he has acted in good 
faith, notwithstanding his very act creates a presumption to the contrary; 
and even this evidence, frail as it is, has not been demanded in a vast 
variety of cases. Until this system shall be changed, — and with the exec- 
utive department of the government alone rests the power of change, — 
the people need never hope for a faithful and prudent management of the 
finances of their government. 

" In each department, and throughout the various ramifications of it, 
whether civil or military, whenever there was money to be expended, the 
most wilful extravagance seems to have followed the administration of 
the law, until the public interests have been sacrificed by its influence." 
Instances are then multiplied, — dredging the Mississippi, the Florida war, 
the removal of the Indians from Florida (a transaction in which the 
secretary of war was badly implicated). 1 Continuing their remarks with 
reference to the expenditures by the different departments, the committee 

1 Report No. 288, 27 Cong., third session. 



1840.] APPKOPRIATIONS AND EXPENDITURES. 565 

This is not a pleasing chapter in our national history ; 
yet Woodbury could justly say, in his closing report, that, 
while he had held the office of secretary of the treasury, — 
notwithstanding the heavy decline in imports (on two 
occasions greatly lessening the revenue), and other losses 
sustained through officers, banks, and merchants, and 
notwithstanding the biennial reduction of duties, and also 
the remission of several millions to railroad companies 
and under new judicial constructions, — the income of 
the government, after all these reductions and losses, had 
been sufficient to meet the current expenses of the gov- 
ernment, as well as the extraordinary ones incurred by 
Indian wars, treaties, and other costly measures, with- 
out imposing any new taxes or higher tariff, or creating 
a new funded debt, although there were four million five 
hundred thousand dollars of treasury-notes still unpaid. 
The last of the old funded debt had been extinguished, 



say " they cannot indulge any other opinion than that they have not been 
made in pursuance of the laws which authorized them, because they are 
wanting in economy, and regard for the public welfare. They are not 
apprised, by any evidence before them, that any investigation whatever 
has been made, or even any doubt expressed, by those before whose scru- 
tiny they had to pass, as to their reasonableness and economy. No check 
seems to have been placed upon the will of the contracting and disbursing 
officers. The presumption seems never to have arisen, when prices so 
greatly disproportioned to the value of the articles received have been 
paid, and which are not allowed in the private transactions of life, that the 
public interest had been jeoparded by infidelity, or the want of a proper 
judgment. Whatever has been expended seems to have been allowed; 
and thus the discretion of a subordinate officer has given law to the scru- 
tiny of a higher officer. This want of accountability has given rise to the 
most profligate waste of public money, and helped to swell the enormous 
expenditures of the government within a few years past. — Report No. 458, 
27 Cong, second session. 



566 FINANCIAL HISTORY OF THE UNITED STATES. [1840. 

interest had been paid on the debt of fifteen hundred 
thousand dollars assumed for the District of Columbia, 
and a surplus of twenty-eight million dollars had been 
divided among the States. The only permanent aid in 
effecting this, beside the receipts from ordinary sources, 
was the debt due from the United-States bank, of about 
eight million dollars, which was nearly the same amount 
as the principal and interest paid to extinguish the last 
remnant of the Revolutionary debt. 



1840.] ACCOUNTING. 567 



CHAPTER XIV. 

ACCOUNTING. 

Haying reached the end of the first half-century of 
the government, it is a fit time to pick up the thread 
relating to the public accounts which was started in the 
beginning of the present volume. Though the subject 
may be a very dry one to the reader, its importance none 
will deny. Did the mode adopted in the beginning for 
paying honest creditors prove effective? were the de- 
mands of dishonest claimants successfully exposed and 
defeated ? did the government wisely guard against mis- 
feasance by its own officers? — these, surely, are important 
matters in the history of any country. 

A committee on retrenchment, in 1842, remarked that 
" the treasury department, as originally established, ap- 
pears to have been well adapted to the purpose for which 
it was designed." * Beside a chief, its officers originally 
were a comptroller, auditor, treasurer, and register. The 
comptroller and auditor were the only accounting officers. 
The register simply recorded settlements and payments, 
and preserved accounts and vouchers. The committee 
declared that no better scheme could have been devised 

1 Gilmer's Report, May 23, 1842, No. 741, 27 Cong., second session. See 
also Woodbury's Report on Re-organization of tbe Treasury in 1834, and 
Report of select committee thereon. 



568 FINANCIAL HISTORY OF THE UNITED STATES. [1840. 

to secure correctness in the accounts, and prevent im- 
proper payments of money. "The comptroller acted as 
a check in both respects ; and, as there was but a single 
revision either of the accounts or warrants, no unneces- 
sary delay was occasioned in the despatch of public busi- 
ness." The least necessary part of this machinery was 
the registry office. 

The design, when organizing the government, was to 
concentrate all accounting agencies in the treasury depart- 
ment. Innovations were made ; but they were not im- 
provements. Said the committee to which we have just 
referred, "The innovations which have been made from 
time to time have not only embarrassed the system by 
making it more complicated, without increasing either 
its responsibility or efficiency : the complex system of ex- 
penditure and account is one of the greatest practical 
obstructions to economy and responsibility in the govern- 
ment. The departments at the seat of government, in- 
stead of being accessible and intelligible to the people 
who come from all quarters of the Union on business with 
them, are labyrinths which often perplex those most expe- 
rienced in their mazes." 

The treasury was the receiving department , the state, 
war, and navy departments simply disbursed the public 
mone}^ : while the postal department performed both func- 
tions. 

The several chiefs were required to provide for the 
appointment of officers and agents in their departments, 
for paying their salaries, for advancing the money they 
needed , to direct the details of service and supply , make 
contracts , and, generally, to superintend the various inter- 



1840.] ACCOUNTING. 569 

ests confided to their departments, leaving the adjustment 
of accounts to the accounting officers, who, as we have 
seen, were connected with the treasury office. Regarding 
the departments in this way, and attaching to them the 
officers who adjusted their accounts, the following arrange- 
ment will show how many officials were employed, and 
what were their duties :. — 

DEPARTMENT OF STATE. 

Administrative Duties. — Secretary and fourteen clerks, com- 
missioner of patents and eleven clerks. 

Accounting Duties. — Fifth auditor and nine clerks. 

WAR DEPARTMENT. 

Administrative Duties. — Secretary and eleven clerks, com- 
missioner of Indian affairs and twelve clerks, commissioner of 
pensions and eleven clerks, commanding-general, commissary- 
general, adjutant-general, quartermaster-general, paymaster- 
general, chief of engineers, colonel of topographical department, 
colonel of ordnance and forty-five assistants and clerks. 

Accounting Duties. — Second comptroller and ten clerks, 
second auditor and fifteen clerks, third auditor and twenty- 
seven clerks. 

NAVAL DEPARTMENT. 

Administrative Duties. — Secretary and eight clerks, three 
navy commissioners and eight clerks. 

Accounting Duties. — Fourth auditor and fourteen clerks. 

POSTAL DEPARTMENT. 

Administrative Duties. — Postmaster-general, three assist- 
ants, and forty-seven clerks. 

Accounting Duties. — Sixth auditor and sixty-eight clerks. 



570 FINANCIAL HISTORY OF THE UNITED STATES. [1840. 
TREASURY DEPARTMENT. 

Administrative Duties. — Secretary and fifteen clerks, com- 
missioner of land-office, solicitor of land-office, recorder of land- 
office and seventy-four clerks, solicitor of the treasury and 
three clerks, treasurer and eleven clerks, register and twenty- 
one clerks. 

Accounting Duties. — First comptroller and fifteen clerks, 
first auditor and thirteen clerks. 

The first comptroller was not only an accounting offi- 
cer, he also superintended the customs. The commis- 
sioner of the land-office managed the public lands, and 
adjusted the accounts of the receivers of money who sold 
the lands. The fifth auditor, beside adjusting accounts, 
superintended the lighthouse establishment. 

The foregoing arrangement represents the auditors as 
connected with the several departments; yet, in truth, 
they were not. The lack of a proper arrangement of the 
accounting officers occasioned much embarrassment. The 
fourth and sixth auditors were exclusively and properly 
confined to the accounts of the naval and postal depart- 
ments; while the second and third auditors, with an 
aggregate force smaller than that employed by the sixth 
auditor, adjusted the accounts of the war department. 
The first auditor divided the treasury accounts with the 
commissioner of t the land-office and the fifth auditor, 
while the latter officer also audited the accounts of the 
state department. 

The prompt adjustment by the sixth auditor of all the 
accounts of the postal department furnished indisputable 
evidence to the committee on retrenchment, who reported, 
in 1842, that one auditor could adjust all the claims of a 



1840.] ACCOUNTING. 571 

department; and such an arrangement was considered 
desirable, chiefly because of the facility and method that 
would follow in despatching business, and giving informa- 
tion. They were certain that a great benefit would arise 
from abandoning the numerical designations of auditors, 
and hy assigning one auditor to each department ; calling 
him the auditor of it, and intrusting him with all of its 
accounts. 

To require the first comptroller to perform adminis- 
trative duties in addition to his duties as an accounting 
officer, was ,a grave defect. As he was the final judge of 
accounts, he ought to have been independent of the sec- 
retary of the treasury ; but in superintending the customs 
he was under the secretary's control. In 1849 1 this defect 
was remedied by creating the office of commissioner of 
customs, and assigning to it all the administrative duties 
pertaining to the customs previously performed by the 
first comptroller. The fifth auditor, too, was relieved of 
his duties pertaining to the lighthouse establishment. 

The entire force connected with the several departments 
at Washington in 1840 was about five hundred and fifty 
or six hundred persons. Most of them were clerks en- 
gaged in examining, adjusting, and keeping the accounts 
of the receipts and expenditures of the government, in 
corresponding, copying, and other duties. 

The accounts of disbursements were far more compli- 
cated and numerous than those of receipts: hence the 
adjustment of the former involved more investigation 
than the accounts of receiving agents. The accounts for 
military disbursements were subjected to examination, first, 
1 Act, March 3, 30 Cong., second session, chap. 108. 



572 FINANCIAL HISTOKY OF THE UNITED STATES. [1840. 

in a bureau or other subdivision of the war department, 
then in the office of the second or third auditor, and 
afterward in the office of the second comptroller. The 
examinations were, in truth, made, with occasional excep- 
tions, by the clerks in the several offices through which 
the accounts passed. In the first place, claims accompa- 
nied by vouchers and explanations were sent to the head 
of a bureau. They were referred by him to one of his 
clerks for examination. The clerk returned them to him 
with his opinion and advice, which was certified, without 
further examination, to an auditor. The same papers 
were referred by the auditor to one of his clerks, who 
examined them, and reported to him ; and, without further 
examination, he certified them to the second comptroller 
in like manner. The comptroller referred the papers to 
one of his clerks, who examined and reported thereon ; 
and the decision then rendered by the comptroller him- 
self was final. The number of claims was too great to 
be examined either by the heads of bureaus, auditors, or 
comptrollers : their duties, therefore, were confined chiefly 
to such points as were raised by the clerks when making 
their examinations. Not infrequently, however, claims 
were presented involving intricate questions of law and 
evidence. To examine these was more especially the 
work of the auditors and comptrollers. To decide them 
justly was often a difficult task. It will be seen, there- 
fore, how important were the offices filled by the audi- 
tors and comptrollers ; nor is there any reasonable ground 
for surprise, considering the mass of claims coming before 
them for adjustment, if mistakes should sometimes have 
been made. 



1840.] ACCOUNTING. 573 

Expenditures for the army and navy departments were 
the largest, and the most often misapplied. The utmost 
diligence and fidelity were required, on the part of the 
accounting officers who adjusted the accounts of these 
departments, to prevent wastefulness and fraud. One 
investigating committee of Congress reported that abuses 
of a very serious nature had been practised in allowing 
large sums of money to officers of the army, not only 
without law, but in direct violation of it. There had 
been a culpable disregard of law and duty, and inexcusa- 
ble prodigality, in allowing many claims of persons con- 
nected with the military service. The allowing of double 
and sometimes triple pay, the extortions on the treasury 
under the pretext of contracts and services not author- 
ized by law nor established by evidence, the gross and 
wholesale injustice to the Indian tribes, showed that there 
was no effective check in the war department to protect 
its interests, and maintain the justice and character of the 
government. It was believed, at the time of making their 
report, that the expense of the army and navy per man 
was about double the expense of those employed in a 
similar manner by European governments. 1 

It was clearly shown that the examination of claims 
was longer delayed and more loosely conducted, with 
respect to those which were thrice examined, than any 
others. The object of subjecting claims to so many ex- 
aminations was to detect and prevent frauds ; but those 
who studied the matter most carefully, questioned whether 
the mode of triple examination had fulfilled the expecta- 
tion of its authors. Responsibility is rarely increased by 
1 See Keport No. 756, 27 Cong., second session. 



574 FINANCIAL HISTORY OF THE UNITED STATES. [1840. 

multiplying agents to do the same thing. Instead of act- 
ing as checks to prevent wrong doing, too often they 
promote negligence and fraud by distributing the responsi- 
bility for what is done. Subsequently the mode of exam- 
ining accounts was changed : they were first examined by 
an auditor, and re-examined by a comptroller, thus omit- 
ting one examination. The change has been a real im- 
provement in two ways, — by increasing the responsibility 
of those who adjust claims, and by expediting the business. 
A very important investigating committee appointed 
in 1842, whose chairman was Mr. Gilmer, formerly gov- 
ernor of Virginia, and afterward secretary of the navy, 
recommended a reduction of the clerical force, and the 
abolition of several offices, — the board of navy commis- 
sioners, the commissary of purchases, the solicitor, and 
the recorder of the land-office. Congress heeded these 
recommendations. Moreover, the committee strenuously 
urged the retention of competent persons in office as an 
indispensable condition of their rendering the most effec- 
tive service. The committee closed their very thoughtful 
report, which is well worth reading in our own time, with 
the following resolution on this subject : — 

" That it is expedient to require the President of the United 
States, in all cases of removals from office, to communicate the 
reason or cause for each removal from office." 

With respect to prescribing how the departments should 
make contracts for the various things needed by the gov- 
ernment, Congress enacted no other important measures, 
beside those already described, 1 until 1843. After that 
1 See Chaps, ii. and xii. 



1840.] ACCOUNTING. 575 

time all materials for the navy were to be furnished by- 
contract, and the transporting of them was to be done in 
like manner. Congress enacted how the proposals should 
be made, and enjoined the navy department to accept the 
lowest offer. Every proposal was to be accompanied with 
a written guaranty, signed by a responsible person, that, 
if accepted, the proposal would be executed. If it were 
not, Congress enacted how the department should proceed 
against the bidder, and also in contracting with others. 1 

In 1844 the fiscal year began with the 1st of July, — a 
change which Woodbury recommended nearly ten years 
before. The need of making it was so obvious, that no 
report was made on the subject by any committee, nor was 
there any opposition to the change. The delay, there- 
fore, in changing the date, is the more unaccountable. 
Five years afterward, the appointment of an assistant 
secretary of the treasury was authorized. His duties were 
to examine letters, contracts, and warrants, requiring the 
signature of the secretary of the treasury, besides such 
other duties as might be imposed on him by the secretary 
himself. 

i Rev. Stat., Sects. 3718-3720, p. 739. 



576 FINANCIAL HISTOEY OF THE UNITED STATES. [1840. 



CHAPTER XV. 

APPKOPKIATIONS AND EXPENDITUKES. 
1840-1860. 

In the autumn of 1840 there was an overturning of po- 
litical parties, and Gen. Harrison was elected President. 
Dying shortly after his inauguration, John Tyler suc- 
ceeded him, whose administration was as novel as it was 
painful, especially to the party by whom he had been 
elected. In May, Thomas Ewing of Ohio, who had been 
appointed secretary of the treasury by President Harri- 
son, made a report to the House, in which he discussed 
chiefly the keeping and disbursing of the public money, 
turning also a side-light, though not very strong one, upon 
the tariff. 1 

Ever since emptying its plethoric purse into the greedy 
State treasuries, the government had not received enough 
to pay its annual expenses. Every year it sank a little 
deeper into the mire of debt. A very uncomfortable 
feeling was kindled by the reflection, that, in a time of 
profound peace, the government could not pay its ex- 
penses year after year, save by borrowing. The treasury- 
note system worked so easily in getting the money needed 

i The secretary's report was elaborately discussed in the Senate by Mr. 
Woodbury. 



1841.] APPROPRIATIONS AND EXPENDITURES. 577 

to pay the deficiency, that it was continued. At every 
session the old stereotyped Act was repeated, with but 
few changes of form, authorizing the secretary of the 
treasury to re-issue the treasury-notes that might be pre- 
sented, and extending his authority to issue more if occa- 
sion required. 

In 1841, 1 on Ewing's recommendation, Congress author- 
ized him to fund the unpaid treasury-notes. The loan 
was to be paid the 1st of January, 1845. Subsequently, 
other treasury-notes, which could not easily be paid, were 
funded in the same manner. The loan authorized in 1843 
was made payable ten years afterward, and bore five per 
cent interest. 

When $7,000,000 more of treasury-notes had been 
funded under the law of 1843, 2 others remained to the 
amount of $4,656,387.45. They bore six per cent inter- 
est, which was a high rate for the government to pay at 
that time. The secretary of the treasury, John C. Spen- 
cer, regarded the duty " very obvious," of exercising the 
authority given to him by the Act of 1843 to issue other 
notes in such a manner as would promote the convenience 
of the treasury, and avoid the danger and expense of re- 
mitting coin to the public agents for disbursement, and yet 
save the largest amount of interest. Although the inter- 
est had ceased on more than two millions of these notes, 
in consequence of a notice given by the treasury of its 
readiness to redeem the whole amount, yet they were 
retained by the people for remittance from place to place. 

1 Act, July 21, 27 Cong., first session, chap. 3. The operation of this 
law was extended. Act, April 15, 1812, 27 Cong., second session, chap. 26. 

2 March 3, 27 Cong., third session, chap. 81. 



578 FINANCIAL HISTORY OF THE UNITED STATES. [1843. 

This fact indicated to the secretary that when they 
were redeemed others could probably be issued, of a low 
denomination, without any or at a nominal interest, and 
that they would be received with avidity by the public 
creditors, if convertible into coin on demand. Thinking 
thus, what did he do ? With the sanction of the Presi- 
dent, he issued notes of the denomination of fifty dollars, 
with interest at the rate of one mill per annum on a hun- 
dred dollars. These notes were to be purchased at par 
whenever presented " at the depositories of the treasury 
in the city of New York ; " and an indorsement to that 
effect was printed on the back of them. They were not 
only receivable for all public dues, but could be exchanged 
for specie at par in the custom-houses and land-offices to 
the amount of one-half the coin in their possession. An 
effort had been previously made by Woodbury to substi- 
tute notes bearing nominal rates of interest, and also notes 
bearing the rate of two per cent ; but the experiment had 
failed because they were not convertible into coin on 
demand. 

No apprehension was entertained of the ability of the 
treasury department to purchase all that might be pre- 
sented for payment. " There was," Spencer declared, 
" and always must be, a surplus in the treasury beyond 
the immediate calls upon it. This, with a revenue more 
than three times the amount of the notes constantly 
accruing, would be adequate, as its place could always be 
supplied with other notes, with or without interest, as 
circumstances required, with which a portion of the pub- 
lic expenditures could be met. In the possible event of a 
large accumulation, treasury-notes bearing such interest 



1843.] APPROPRIATIONS AND EXPENDITURES. 579 

as would insure loans not exceeding the prescribed rate, 
or a resort to the authority to issue a stock, would either 
of them be sufficient to provide the necessary funds to 
meet such accumulation." 

As a justification for this measure, the secretary de- 
clared that the exigencies of the treasury demanded that 
the effort should be made to relieve it from such a 
weight of interest, especially since it would not preclude 
a return to the system which invited banks to hoard 
treasury-notes by allowing them interest, while they bor- 
rowed of the community, without interest, to the extent 
of their circulation. 1 

Spencer discovered no constitutional objection to bor- 
rowing in this way; but Congress did, and the fires of 
controversy grew very warm. Indeed, all the constitu- 
tional arguments against making paper money a legal 
tender, which were put forth twenty years later, may be 
found in the reports and discussions occasioned by this 
action of the secretary of the treasury. 2 

1 Annual Report, December, 1843. 

2 Report No. 379, 28 Cong., first session. This mode of issuing treasury- 
notes was a renewal of a feature of the Tyler Board of Exchequer, which 
Congress has so emphatically condemned. The seventh section of the bill 
to establish that board read as follows: " That the secretary of the treas- 
ury is hereby authorized and directed to cause to be prepared treasury- 
notes of denominations not less than five dollars nor exceeding a thousand 
dollars, which notes shall be signed by the treasurer of the United States, 
and countersigned by the president of the board of exchequer, and made 
payable to the order of the principal agent at each agency, aDd shall be by 
him indorsed when issued at such agency; and which notes shall be 
redeemable, and shall be redeemed in gold and silver, on demand, at the 
agency where issued. And treasury-notes intended to be issued by the 
board of exchequer at the seat of government shall be in like form," etc. 
" And all treasury-notes issued under the authority of the Act may, when 
redeemed, be issued by the board and its agencies respectively." 



580 FINANCIAL HISTORY OF THE UNITED STATES. [1842. 

An effort was made to negotiate a loan for the amount 
needed to discharge the treasury-notes in Europe ; but no 
foreigner could be induced to buy our government bonds 
at that time at par, even though bearing six per cent 
interest. William Cost Johnson, who acted for the treas- 
ury department in this transaction, remarked in his report, 
that " while nations with not a tithe of our resources, 
and with large public debts, have been able to effect loans 
at three per cent per annum, the agent of this govern- 
ment had to return from the same money-market where 
capital is seeking investment at two and three per cent 
without receiving a single offer for any portion of a loan 
to our government at six per cent." 

Why did Congress suffer the public debt to increase ? 
Why were not the expenditures reduced, if increased tax- 
ation were not practicable ? Why should the six millions 
of indebtedness bequeathed by the former administration 
be allowed to expand beyond twenty-five millions in 
1844 ? Retrenchment was the true remedy, yet Congress 
seemed reluctant to apply it. The salaries paid were 
fixed when the country was sailing on the flood-tide of 
prosperity, when money was plentiful and cheap, and the 
prices of every thing correspondingly high. But now the 
situation was reversed, yet Congress was very slow in 
discovering it. Not until 1844 did Congress awake to the 
necessity of reducing expenses in order to stop the growth 
of the debt. 

Although another national debt was growing, a move- 
ment began in 1842 to increase it by assuming the debts 
of the States, which at that time amounted nearly to 
$200,000,000, — a larger sum than either of the war debts 



1842.] APPEOPKIATIONS AND EXPENDITUEES. 581 

paid by the government. These debts were almost wholly 
the growth of the preceding fifteen years. At the close 
of 1825 the States owed only $12,790,728, and during the 
next five years no more than $13,679,689 additional stock 
had been issued. In the succeeding five years, however, 
$40,012,769 were issued, and $107,823,808 more in less 
than three years afterward. The debts of the several 
States now reached $174,306,994. The money had been 
spent in aiding State banks, in building canals, railroads, 
turnpikes, macadamized roads, and other things. 

The debts were mostly held abroad, and bore six per 
cent interest. The creditors were willing to reduce the 
rate one-half, if the government would assume the obli- 
gations. William Cost Johnson of Maryland was the 
champion, in the House, of national assumption, and was 
appointed chairman of a special committee to consider the 
subject. A large number of memorials were sent to Con- 
gress, in which a common opinion was expressed that 
industry had become unprofitable, wages had fallen, per- 
sonal confidence was impaired, and business paralyzed. 
The States, too, though having the will to pay their an- 
nual obligations, it was declared, had not the means, that 
confidence would not be restored, nor industry thrive, 
nor the faith of many States be maintained, nor the gov- 
ernment itself recover its former credit, until Congress, 
by decisive and enlightened legislation, rescued the peo- 
ple and the States from their embarrassed condition. 

The committee reported in favor of assumption. At 
that time Illinois was a delinquent State , Missouri had 
passed a stay law, because her people were suffering from 
the embarrassments of the former State, Maryland was 



582 FINANCIAL HISTOHY OF THE UNITED STATES. [1844. 

remiss in her engagements ; and South Carolina, though 
punctual in paying, was regarded with distrust, and her 
stocks sold below par. One of the strongest arguments 
in favor of assumption was, that the government assumed 
the debts of the States in 1790. 

On the other hand, the unequal benefit of assumption 
to the States was a fatal objection to the measure. Many 
of the States owed nothing ; others, only a small amount. 
The committee proposed to divide the $200,000,000 of 
government bonds or stock on the basis of 11,000,000 for 
each senator, $651,982 for each representative, and the 
same amount for the District of Columbia. The basis 
was determined by the last apportionment law. Congress 
did not adopt the plan ; and the nation escaped from the 
burden which the contractors of the debt, and the holders 
of it, were so anxious to put upon the national shoulders. 1 

Spencer was succeeded by George M. Bibb of Kentucky, 
the fourth and last secretary of the treasury during 
Tyler's troubled administration. Ewing resigned when 
Tyler began to manifest a disinclination to remain in har- 
mony with the party that had elected him ; and he was 
succeeded by Walter Forward of Pennsylvania, who had 
been appointed first comptroller by President Harrison. 
He remained in office long enough to report twice annu- 
ally concerning the administration of the treasury depart- 
ment. The President next sent the name of Caleb 
Cushing into the Senate, but the nomination was rejected. 
The nomination was twice renewed, but the Senate reso- 
lutely declined to confirm him. John C. Spencer, the 
secretary of war, was then transferred to the treasury de- 
i Eeport of Select Com., No. 296, 27 Cong., third session. 



1844.] APPROPKIATIONS AND EXPENDITURES. 583 

partment, and the Senate sanctioned the change. Scarcely 
had a year passed before Spencer resigned in consequence 
of receiving an order from the President to deposit one 
hundred thousand dollars of secret service money with 
a confidential agent in New York contrary to law. 1 With 
such swift changes, efficiency in conducting the affairs of 
the treasury was impossible. The wonder is, that the 
public business was not managed worse. While Bibb 
administered the finances, prosperity returned to the 
country, and a larger revenue flowed into the treasury. 
There was no longer a deficiency, but a surplus, which 
Bibb recommended should be kept for a sinking-fund to 
pay the debt which had been accumulating since 1837. 
No longer did the secretary of the treasury need recom- 
mend the tapping of new sources for taxation : the supply 
of revenue was bountiful, and the wheels of the govern- 
ment rolled easily along. 

Yet there was a marked difference between his views, 
and those of the committee of ways and means, with 
respect to paying the public debt. Bibb favored a slower 
liquidation, and recommended the issue of new stock for 
a portion of it, payable in ten or fifteen years, and a 

1 The New- York Evening Post, in explaining this affair more fully, 
added, " In carrying out the preparations for the naval expedition against 
Mexico, it became necessary to procure the deposit of a hundred thousand 
dollars, by way of secret service money, with a confidential agent at New 
York. As there could be discovered no Act of Congress directing such a 
disposition of any part of the public money, Mr. Spencer, when requested 
by the President, declined giving the order, or to allow it to be given, to his 
subordinates. He next, it is said, received a peremptory order to transfer 
the money. Mr. Spencer, seeing the game was up, coolly wrote a second 
refusal, and with it sent in a note of resignation. He remained in the 
department just twenty-four hours afterwards." — 66 Niles, p. 209. 



584 FINANCIAL HISTORY OF THE UNITED STATES. [1844. 

reduction of taxes: on the other hand, the committee 
stoutly advocated a more rapid payment of the debt, and 
the maintenance of the revenue laws. Their views pre- 
vailed. 

The wasteful and illegal expenditure of money, which 
had thrown such a painful glare over the two former 
administrations, had by no means ended. It had been 
lessened in many ways ; but, when once these fires begin 
to burn, they are not easily extinguished. Said a com- 
mittee on retrenchment in 1844, 1 " Thorough investigation 
has been so long delayed, that abuses have imperceptibly 
crept into nearly every department, 'regulations' have 
become laws, ' precedents ' have constantly multiplied for 
extra allowances and other unwarrantable expenditures, 
office-hours have been shortened, and indolence become 
fashionable." In the army and navy especially, the offi- 
cers were receiving a large compensation in return for a 
slight service, and many were retained who had no duty 
to perform. " A most reckless and profligate use " had 
been made of the contingent funds of the several depart- 
ments, including that under the immediate control of the 
House. But Congress hesitated to begin the greatly 
needed work of reform. Indeed, it has always been diffi- 
cult for that body to pare down expenditures, however 
glaring might be the necessity for such action. 

When Woodbury retired from the treasury, the gov- 

1 Report No. 300, 28 Cong., first session. The committee at the same ses- 
sion recommended a reduction in the pay of the army (Report No. 353) and 
in the navy (No. 373). The commissary-general of subsistence recom- 
mended a change in the mode of making contracts which would save 
money to the government (Report No. 353, Appendix E). 



1844.] 



APPROPRIATIONS AND EXPENDITURES. 



585 



ernment was in debt ; though the amount was small, and 
would have been discharged during his last official year, 
had there not been very large expenditures for the Florida 
war, and for paying Indian claims. How the debt had 
risen by the end of the next four years will be seen in 
comparing the following figures: — 



Old funded debt . 
Old unfunded debt 
Treasury-notes of 1812 . 
Mississippi stock 
Debts assumed of District of Colum 
Outstanding treasury-notes . 
Loan of 1811 .... 
Loan of 1842 .... 
Loan of 1843 .... 



bia 



Dec, 1839. 

$299,554 95 

26,622 44 

5,295 00 

4,320 09 

1,500,000 00 

4,433,823 00 



Dec, 1844. 
$156,174 51 

22,003 56 

4,317 44 

4,320 09 

1,260,000 00 

1,912,713 17 

5,143,026 88 

8,343,886 03 

7,004,231 35 



$4,771,115 48 $23,850,673 17 

The secretary had redeemed, it is true, since July, 
$322,584.61 of treasury-notes, and 1539,950 of the stock 
issued in 1841 ; but the debt which remained was an in- 
delible mark of the misgovernment of the period. There 
were some slight attempts to economize during Tyler's 
administration ; but extravagant and corrupt modes of 
expenditure had become so perfectly organized, that re- 
form was slow and difficult. 1 It must be added, too, that 



1 A committee that investigated the expenditures of Lieut. McLaughlin, 
commander of the Florida squadron, whose corrupt course toward the 
government was very clearly proved, said, in closing their report, " Con- 
gress and the people may now understand, in part, why it is that the ex- 
pense of supporting our navy is so much greater than that of any other 
nation. The committee have no reason to suppose or believe, that, in the 
disbursements of the naval appropriation, cases of abuse and squandering 



586 FINANCIAL HISTOEY OF THE UNITED STATES. [1844. 

the cry of retrenchment was neither strong nor effective. 
The spirit of reform that existed in Congress was faint 
and fitful, and spent itself chiefly in lamentation. Noth- 
ing could have been clearer than the duty of Congress 
to bring the expenditures within the receipts, yet not 
until 1846 were the estimates for expenditures very much 
reduced. A new tariff was enacted in 1841, which was 
expected to yield a larger revenue to the government; 
but for two years afterward importations were light. The 
country had suffered reverses, and had not recovered from 
liquidating the heavy balance due abroad, — the accumu- 
lation of several years of buying in excess of the products 
sent thither. While the income was reduced, especially 
in a time of peace, the expenditures ought to have been 
pared down in almost every direction. Congress should 
have diminished the appropriations, and the executive 
departments should have been more faithful and efficient 
in making contracts and in settling accounts. Had these 
things been done, there would have been no debt in 1844. 
Woodbury, it is true, pleaded for a reduction of the 
appropriations ; but he did not point out where to make 
them. He might have shown this so clearly that Con- 
gress would not have dared continue in the old ways. His 
successors flitted through the treasury department so 
swiftly, that they scarcely had time to ascertain where the 

of the public money frequently occur to the extent of the one in question; 
but they are convinced that needless expenditure and extravagance, to a 
great extent, exist throughout the whole service, owing, as the committee 
believe, to the present loose and faulty system of accountability. This 
leak upon the treasury, which it has become the duty of the committee 
to expose, is but one among many which remain to be found out and 
stopped." — Report No. 582, 28 Cong., first session. 



1843.] APPROPRIATIONS AND EXPENDITURES. 587 

growth of expenditure had been exuberant, and might 
be wisely lopped off. It was easier to recommend an 
increase of revenue. Ewing, thinking that Congress 
might not be willing to revise the tariff until it had had 
" its final and permanent operation," recommended, as a 
temporary measure, levying a duty of twenty per cent 
ad valorem on all articles which at that time paid no duty, 
or one less than twenty per cent, and some other modifi- 
cations of the existing tariff, with the view of enriching 
the revenues of the government ; and this recommenda- 
tion received the sanction of Congress. Forward favored 
a re-adjustment of the tariff, and higher rates. Spencer 
recommended retrenchment, especially in collecting the 
revenues, and in some of the permanent and indefinite 
appropriations; but he uttered only a feeble note. As a 
relief measure, he urged more cogently the taxing of tea 
and coffee. 1 

His estimate of expenditures was very sharply criti- 
cised by the Committee of Ways and Means. He thought 
the deficiency would be about four millions and a half at 
the end of June, 1845 ; but in making his calculations he 
added the outstanding appropriations of the previous year, 
and omitted to deduct the outstanding appropriations of 
the current year. The committee regarding the unex- 

1 Annual Treasury Report, December, 1843. Ingersoll, in his Minority 
Report on the Tariff (April 4, 1844, No. 306, 28 Cong., first session), said, 
" During the year 1843 upwards of twenty-two thousand pounds of coffee 
were imported into the district of Baltimore alone. If it had paid a mod- 
erate duty of two cents a pound, it would have yielded more than two- 
thirds of all the revenue received at that custom-house. Experience has 
shown that a duty upon coffee is attended with little or no increase of price 
to the consumer; and the impression was general, that, if required by the 
treasury, it would be just and popular." 



588 FINANCIAL HISTORY OF THE UNITED STATES. [1843. 

pended balance of appropriations of each year as not 
varying "very materially from one year to another," 
they set aside, from the appropriations for the fiscal year 
1844-45, 12,500,000 for these unexpended balances, and 
by so doing cut down the deficiency to $2,000,000. The 
committee agreed with the secretary in regarding "the 
insufficiency of the current revenues to meet the cur- 
rent expenditures to be not merely present, but future 
also." What the committee proposed was a reduction 
of expenditure equal to the probable deficiency in the 
revenue. Reductions covering this amount had been 
recommended by Spencer. Though adopted by the Com- 
mittee of Ways and Means, they did not expect to secure 
a reduction of the appropriations to the standard of the 
accruing revenue. The committee remarked, that, at 
each session of Congress for the last seven years, appro- 
priations had been made which were much larger than 
the current revenues. " During the early portion of this 
period there were means in the treasury independent of 
the current revenue, being a surplus of former years, to 
meet these excesses of appropriations; and when those 
means were exhausted, temporary loans in the form of 
treasury-notes were resorted to, to supply the deficiencies. 
In this way a debt in the shape of treasury-notes outstand- 
ing, to an amount not probably varying very materially 
from six millions, had been contracted at the time when 
the present administration came into power (on the 4th 
of March, 1841) ; and that debt, thus commenced, has 
since that time, and up to the first day of December last, 
been swelled to the startling amount of more than twenty- 
five millions, more than twenty-one millions of which have 



1844.] APPROPRIATIONS AND EXPENDITURES. 589 

been made to assume the permanent form of loans for a 
term of years, and the residue yet retains the form of 
treasury-notes outstanding. Deficiencies in the current 
and accruing revenue, to meet the annual appropriations, 
have accumulated this amount of debt in this short pe- 
riod, and more than nineteen millions of it within three 
years." 1 

When Bibb made his report, at the close of 1844, the 
country had recovered from its depression, profits were 
greater, the bank circulation had expanded, importations 
had increased, and the revenues were augmented suffi- 
ciently to pay the current expenditures and leave a sur- 
plus. 

Walker, who succeeded Bibb, proposed to swell the 
national income still more by revising the tariff in such a 

1 This amount did not include the halance of the old funded or unfunded 
debt, or the debts assumed for the cities in the District of Columbia, nor 
the indebtedness to the Indian tribes, nor various trust-funds. — Report, 
March 11, 1844, No. 306, 28 Cong., first session. 

There were always appropriations made for one year, which were not 
expended, or only in part, until the next. These balances varied in round 
numbers from $6,000,000 to $18,000,000, and the appropriations from 1829 to 
1840 increased beyond the expenditures to the amount of $17,442,125.18. 
Portions were carried to the surplus fund ; yet an unexpended balance of 
former appropriations, amounting to $10,412,003.20, remained Jan. 1, 1843. 
The committee of ways and means, in their report on the state of the 
finances in February, 1843, remarked concerning this practice, "It has 
thrown a vast responsibility upon the Executive, and vested him with a 
dangerous power over the treasury of the nation. To illustrate this, let us 
suppose that the appropriations for 1842 were $20,000,000, and that the 
President should see fit to expend only one-half during that year, and 
permit the remaining $10,000,000 to lie over for expenditure in 1843: then 
if the appropriations for 1843 should be $20,000,000, the President would 
have it in his power to expend $30,000,000 in 1843, and thereby exhaust the 
treasury." — No. 227, 27 Cong., third session. 



590 FINANCIAL HISTORY OF THE UNITED STATES. [1846. 

way as to obtain the largest revenue possible from im- 
portations. Congress adopted his views, and the tariff 
was revised accordingly. But again the alarm of war was 
sounded, and more money than was received through the 
ordinary channels was needed. 

The President was authorized to issue, within a year, 
ten million dollars of treasury-notes, or to issue stock for 
that amount redeemable within twenty years. Only six 
per cent was to be allowed in either case ; nor was any 
commission to be given for negotiating the loan. 1 

Although Congress authorized this loan in July, within 
six months more money was required to maintain the war 
against Mexico. In January, 2 therefore, a loan of twen- 
ty-three million dollars was authorized ; but several new 
conditions were attached to it which require notice. The 
President could issue the whole amount in the form of 
treasury-notes of as small denominations as fifty dollars ; 
and they were redeemable within one or two years after 
date, the interest to be determined by the secretary, with 
the approval of the President, though not exceeding six 
per cent, which was to cease after a notice of sixty days 
that the government was ready to redeem them. They 
were to be given to those creditors who were willing to 
receive them ; and on their credit the secretary was author- 
ized "to borrow from time to time such sums as the 
President may think expedient." The law, however, con- 
tained a proviso that they could not be pledged or sold 
for less than their face value, "including the principal 
and interest thereon." They were transferable by deliv- 

1 Act, July 22, 1846, 29 Cong., first session, chap. 64. 

2 Act, Jan. 28, 1847, 29 Cong., second session, chap. 5. 



1846.] APPROPRIATIONS AND EXPENDITURES. 591 

ery and assignment, and receivable for all public dues; 
and the secretary was authorized to buy them at par, 
allowing also for the amount of interest due at the time 
of purchase. The holders, too, of all outstanding treas- 
ury-notes, were allowed to exchange them for six-per-cent 
funded stock, and to receive the interest due thereon at 
the time of the exchange in money, the government 
reserving the right to redeem them at any time after Jan. 
1, 1848. The authority granted to the secretary the pre- 
vious year, to issue ten million dollars of treasury-notes, 
was limited to issuing one-half that amount; and the 
President was granted discretionary power to issue stock 
for the entire loan of twenty-three million dollars, instead 
of treasury-notes redeemable after the 1st of January, 
1848.' The secretary of the treasury was also required to 
publish monthly a statement of all the treasury-notes 
issued or redeemed. 

In February the secretary advertised for proposals for 
eighteen million dollars of these notes. He stated in his 
notice that all bids must be unconditional, and without 
any reference to the bids of others, or they might not be 
considered. None would be received below par. The 
department reserved the right to fix the periods when the 
money must be paid, " so as not to be required to antici- 
pate the wants of the government, or allow any interest " 
before receiving the money. The amount of the bids was 
157,722,983, nearly all of which were above par, varying 
from one-eighth of one per cent to two per cent. The 
remainder of the loan was exchanged at par, partly for 
money to be deposited without charge at New Orleans, 
where the wants of the government were great, and the 



592 FINANCIAL HISTOKY OF THE UNITED STATES. [1846. 

rest chiefly to the Smithsonian Institution. On the 22d 
of October, 1846, the department had advertised for the 
exchange at par of three million dollars of treasury-notes 
bearing five and two-fifths per cent interest for deposits of 
specie with the assistant treasurers. For several months 
the exchange was made slowly ; and when, in February, the 
eighteen-million loan was advertised, " serious doubts were 
entertained " whether it would be taken at par. It was 
the first loan ever negotiated in specie since the founding 
of the government, and the first, save that of the pre- 
vious autumn, which had ever been negotiated at or above 
par during a period of war. "The magnitude of the 
loan," declared the secretary, " the fluctuations below par 
of the previous stock and notes, the untried, and, to many, 
alarming restraining operation of the constitutional treas- 
ury, the heavy expenditures of the war, and the require- 
ment of all the payments from time to time in specie, 
were deemed by many as insuperable obstacles to the 
negotiation of the whole of the loan at or above par. 
But, under the salutary provisions of the constitutional 
treasury, the credit of the government was in truth en- 
hanced by receiving and disbursing nothing but coin; 
thus placing all its transactions upon a basis more sound, 
and entitled to higher credit, than when it held no specie, 
had no money in its own possession, and none even in the 
banks, to pay its creditors, but bank paper. Then it was 
dependent upon the credit of the banks, and was sub- 
jected to every fluctuation which affected their credit: 
now it stands upon the basis of specie, so as to be above 
all suspicion of discredit ; whilst, by its demand for coin 
for revenue payments, it sustains not only its own credit, 



1S47.] APPROPRIATIONS AND EXPENDITURES. 593 

but renders more safe the credit and currency and busi- 
ness of the whole Union." * 

The next year another loan of sixteen million dollars 
was authorized, bearing six per cent interest, payable 
quarterly or semi-annually, and reimbursable after twenty 
years. 2 Proposals were to be invited, the surplus reve- 
nues were pledged for paying the loan, and the secretary 
was authorized "to purchase, at any time before the 
period . . . limited for the redemption of the stock, . . . 
such portion thereof at the market price, not below par, 
as the funds of the government " might admit " after 
meeting all the demands of the treasury." 3 This was 
the final loan for paying the cost of waging the Mexican 
war. 

The loan was duly advertised just as the war closed ; 
and the premium obtained was 1487,168.66, " which was 
the more extraordinary," said Walker, "inasmuch as the 
entire sale of the sixteen millions of stock in a single 
day exceeded the rate at which the government six-per- 
cent twenty-years' stock, exclusive of interest and bro- 
kerage, was then selling in small sums in the market." 4 

The secretary of the treasury had no right to purchase 
above par the twenty-eight millions of treasury-notes and 
stock authorized by Congress in 1847. When the bill was 
pending, Walker recommended that authority should be 
delegated to the treasury to purchase any portion of it at 
the market rate, whatever that might be. His reason 
was, that such authority would make the debt more 

i Annual Report, December, 1847. 2 From July 1, 1848. 

3 Act, March 31, 1848, 30 Cong., first session, chap. 26. 

4 Annual Report, December, 1848. 



594 FINANCIAL HISTORY OF THE UNITED STATES. [1848. 

valuable to the purchaser when sold by the treasury, 
and therefore would increase the premium. It was obvi- 
ous, the secretary declared, that, if the government had 
the means to purchase the debt before maturity, it should 
be done, rather than to pay the interest ; and it was also 
clear, that by increasing the amount which the govern- 
ment could purchase, " especially to the great extent of 
twenty-eight million dollars," the treasury could purchase 
on better terms. He therefore recommended that au- 
thority be given to purchase the debt at the market rate. 1 
This legislation was the more needful, because the income 
derived from the sales of lands had been set apart for 
discharging this debt; yet, if it could not be thus em- 
ployed before the debt matured, it must remain in the 
treasury. Congress granted the authority , and subse- 
quently, purchases were made at varying rates, though 
some of them were very high. 2 

The excess of army and navy expenditures occasioned 
by the Mexican war was $63,605,621.31 ; the increase 
of debt, by the issue of stock and treasury-notes, was 
$49,000,000: consequently the difference, $14,605,621.31, 
was paid from the revenue, including the, premium, ob- 
tained from loans, of $563,061.39. A still larger portion 
of the expenditure would have been paid from the reve- 
nue, had Congress imposed a duty on tea and coffee, which 
Walker recommended. His recommendation, though re- 
peated several times, made no effective impression on 
Congress. 3 

* Annual Report, December, 1848. 

2 Act, March 3, 1849, 30 Cong., second session, chap. 100. 

3 See Annual Treasury Report, December, 1850. 



1831.] APPROPRIATIONS AND EXPENDITURES. 595 

The debt began to shrink after the close of the war ; 
yet Meredith, Walker's successor, appointed by President 
Taylor, declared there would be a deficit in 1850 and 
1851, arising from the payment of money to Mexico 
under the treaty. 1 He not only recommended the issue 
of more stock or treasury-notes, but also an increase of 
the duties. Congress authorized the issue of 810,000,000 
of stock to Texas, 2 in execution of an agreement when 
that State was admitted into the Union, but declined to. 
change the tariff. Meredith was appointed from Penn- 
sylvania, and his report was mainly an elaborate argu- 
ment for restoring a protective system of duties. 

Although the debt was increased by the issue of stock 
to Texas, and the payment of the Mexican indemnity, a 
portion of the debt was paid every year. The govern- 
ment could not get hold of it without paying a heavy 
price. The premiums paid on 82,523,200 of certificates 
of stock, purchased at market rates in 1851 and 1852, 
amounted to $325,655.24, — more than one-eighth of the 
entire debt purchased. "These rates, if applied to the 
whole debt as it stood on the 20th of November last," 
said the secretary in his annual report in December, 1851, 
"would require for its liquidation, in addition to that 
amount, about the sum of eight million dollars." 

The secretary inquired whether sound policy did not 
demand the giving to the department some discretion to 

1 The United States had agreed, in the treaty with Mexico, to pay 
815,000,000 to her, beside $3,500,000 of claims of American citizens against 
the Mexican Government. The payments to Mexico were to he made at 
various times, extending over several years. 

2 Only §5,000,000 were issued. See Corwin's Annual Treasury Report, 
Jan. 15, 1853. 



596 FINANCIAL HISTORY OF THE UNITED STATES. [1851. 

purchase with the available surplus revenue sound State 
stocks, when this could be done at or near their par 
value, and to hold them for a sinking-fund, which might 
be applied toward redeeming the public debt when it 
became due. Of course, the object of establishing such 
a policy was to pay the debt without paying a premium. 
The secretary regarded "such a course desirable," but 
Congress thought otherwise. 

The history of the treasury department's investment 
of trust-funds in 1836 was undoubtedly fresh in the 
minds of some members. Congress authorized the in- 
vestment of the Smithsonian fund in State stocks, and 
the secretary of the treasury, soon after receiving the 
gift, exchanged it for bonds issued by the State of Arkan- 
sas. The money was received by Ambrose Sevier, a 
senator from that State. For several years the interest 
was paid in similar bonds. The remainder of the fund 
was invested in bonds issued by the State of Michigan. 1 
In 1841 Congress directed that the interest, and "all 
other funds held in trust by the United States, when not 
otherwise required by treaty," should be invested in the 
stocks of the government. 2 The State of Arkansas, after 
a few years, stopped paying interest on its bonds; and 
Congress, in 1845, resolved that the percentage of sales 
of public lands within the State to which it was entitled 
should be applied toward paying the interest and princi- 
pal of its bonds held by the government. 3 Recalling this 

1 The amount invested in Arkansas bonds was five hundred thousand 
dollars, and, in Michigan bonds, nine thousand dollars. 

2 Act, Sept. 11, 27 Cong., first session, chap. 25. 

8 Res. No. 14, March 3, 28 Cong., second session. See Speech of John 
Quincy Adams to his Constituents, Oct. 30, 1844, 67 Niles, p. 154. 



1853.] APPROPRIATIONS AND EXPENDITURES. 597 

history of investing money by the treasury department, 
Congress wisely declined to authorize the secretary of 
the treasury to make other investments. 1 

The mode adopted by the treasury for buying stock is 
worthy of notice. At one time money was advanced to 
brokers to pay for the stock purchased by them. Guthrie, 2 
thinking that this mode might " lead to a misapplication 
of the public funds, and to favoritism," discontinued it. 
The stock issued in 1843 was due ten years afterward; 
and in March, 1853, the secretary of the treasury gave 
notice that he would pay the principal at any time the 
owners might desire, including, also, the interest due at 
the time of requesting payment. He also offered to 
redeem portions of the stock issued in 1842, 1846, and 
1847 ; paying par, and a premium of twenty-one per cent, 
on the latter stock, eight and one-half per cent premium 



1 Corwin again remarked on this subject, in his annual report sent to the 
House in January, 1853, " The department possesses no authority to pur- 
chase, at a rate above par value, any portion of the six-per-cent loan of 1847, 
and which is only redeemable in 1867, except to the extent of what balance 
may remain in the treasury from the receipts from the sale of public lands 
after the interest on that loan has first been paid from such receipts. As 
the amount of that stock forms so large a portion of the public debt, it 
would be desirable that Congress should remove that restriction by au- 
thorizing its purchase at the current market-value. By thus giving a more 
extended scope to the application of any surplus funds in the treasury for 
the purchase of the public debt, it would probably enable the department 
to procure it on more favorable terms." 

2 James Guthrie, who was appointed secretary of the treasury by Presi- 
dent Pierce, administered the finances in a highly creditable manner. He 
evinced a marked aptitude for finance, and was thoroughly devoted to the 
interests of the government. President Pierce first tendered the office to 
Reuel Williams of Maine, who had served in the National Senate, and 
whose fitness for the office was unquestionable. 



598 FINANCIAL HISTORY OF THE UNITED STATES. [1853. 

on the stock of 1846, and sixteen per cent on the stock 
issued in 1842. 1 

Guthrie adopted this mode of discharging the debt, not 
only to prevent the possible loss of money, but to retard 
accumulations in the treasury. The increase of receipts 
over expenditures occasioned at times alarm in commer- 
cial and financial circles. The secretary hoped that " the 
accumulations in the treasury would exercise a beneficial 
restraint upon importations and speculative credit enter- 
prises, and bring the business of the country into a safe 
and wholesome condition; yet, under the apprehension 
that a panic might arise from a too stringent operation of 
the treasury," he advanced money to the mint to buy 
gold and silver for coinage, beside resorting to the expe- 
dients already mentioned for increasing the outflow from 
the treasury. 

His offers to purchase the public debt were issued in 
March, July, and August, 1853, at the market price ; and 
he succeeded in getting a large amount of it, and aiding 
those who wished to sell their stocks and borrow money. 
The balance of the loan to the cities lying within the Dis- 
trict of Columbia was paid the same year, and also a part 
of the Texan bonds. " The fact is established," the secre- 
tary says in his annual, report at the close of 1853, "that 
the public debt of each description can be obtained at 
the premiums offered and paid, and the premiums made 
be reduced as the time fixed by the terms of the law for 
redemption approaches." 

At the beginning of Pierce's administration, in March, 
1853, the debt was $69,129,937.27, and was subsequently 

1 See Annual Treasury Report, December, 1853, Appendices D, E, F. 



1857.] APPEOPEIATIONS AND EXPENDITURES. 599 

increased 12,750,000 to liquidate the debt of Texas. By 
the middle of November, 1856, the figures had melted 
away to $30,963,909.64. Of the sum paid, 140,916,027.63 
represented the principal, and the balance ($4,609,882.31) 
the premium on portions redeemed before maturity. A 
saving of $14,606,441.39 was effected on the debt thus 
paid in advance. 

Beside this debt, a considerable sum was due to the 
Indian tribes, growing out of the extinction of their title 
to the public land. In 1856 this sum amounted to $21,- 
066,501.36, and was payable at different times. Estimates 
were furnished for making payments, when they matured, 
by the interior department. The government at that 
period had also invested in stocks, for several of the tribes, 
$3,511,624.08. 

The reduction of the debt was so rapid, that the next 
year the government parted with a portion of its revenue. 
Scarcely had this been done, when the land was smitten 
with another financial panic. The national income speed- 
ily diminished, and in December an issue of twenty mil- 
lion dollars of treasury-notes became necessary. 1 The 
next June a loan of twenty million dollars of stock was 
authorized to meet current obligations. 2 The secretar}^ 
of the treasury, Howell Cobb, recommended raising the 
duties ; but Congress did nothing. There was no wise 
pruning of expenditures ; and the treasury drifted, borne 
up by the belief, that, when the financial crash was over, 
importations would increase, and the revenues be ample 
to discharge, in due time, all forms of public indebtedness. 
The treasury-notes which were issued in 1857, payable 

1 Act, Dec. 23, 1857, 35 Cong., first session, chap. 1. a Chap. 165. 



600 FINANCIAL HISTORY OF THE UNITED STATES. [1860. 

in a year, could not be paid when they matured, and so 
they were renewed until June, I860; 1 then Congress 
passed a law to fund them. The stock was not to exceed 
twenty-one million dollars in amount, nor bear more than 
six per cent interest. It was not to be paid for ten 
years, and within twenty. In September, proposals were 
invited for a loan of ten million dollars, a sum large 
enough to meet all the treasury-notes that would fall due 
before the 1st of January, 1861. Five per cent interest 
was offered, the secretary believing that the loan could 
be readily negotiated at that rate. At that time the five- 
per-cent stock of the United States was selling in the 
market at a premium of three per cent. The whole 
amount was taken at par or a small premium ; but, be- 
fore payment was made, another destructive wave rolled 
over the land, and many of the bidders were unable to 
respond. Some did so at a considerable sacrifice, and 
others were nursed by extending the time of payment. 
The entire amount thus borrowed was seven million and 
twenty-two thousand dollars. 

When Congress met in December, eleven million dol- 
lars of the stock authorized to pay the treasury-notes had 
not been issued. The secretary declared that " the diffi- 
culties attending the payment of the stock already sold, 
in connection with the fact that capitalists, in the present 
condition of the country, were unwilling to invest in 
United-States stock at par, render it almost certain that 
this remaining eleven millions cannot now be negotiated 
upon terms acceptable to the government. The condition 
of the treasury is such that no serious delay can be in- 

1 36 Cong., first session, chap. 180. 



I860.] APPROPEIATIONS AND EXPENDITURES. 601 

dulged." He recommended a repeal of the law enacted 
the previous year, so far as it authorized the issue of eleven 
million dollars more stock, and that authority be given 
for issuing an equal amount of treasury-notes at such 
rates as would command the confidence of the country. 
To create that confidence, he recommended that the public 
lands be unconditionally pledged for the ultimate redemp- 
tion of all the treasury-notes that might be issued. "I 
make this recommendation," he adds, "of substituting 
treasury-notes for stock, the more readily, from the con- 
viction that there should always exist, in the department, 
power to issue treasury-notes for a limited amount, under 
the direction of the President, to meet unforeseen con- 
tingencies. It is a power which can never be abused ; as 
the amount realized from such source can only be used to 
meet lawful demands upon the treasury. No secretary of 
the treasury, or President, would ever exercise it, except 
compelled to do so by the exigencies of the public service : 
on the other hand, it would enable the government to 
meet, without embarrassment, those sudden revulsions to 
which the country is always liable, and which cannot 
always be anticipated." Congress authorized the issue 
of ten million dollars of treasury-notes in lieu of eleven 
million dollars of stock, redeemable at the end of one year 
from date, and bearing six per cent interest until called 
for redemption. The secretary, however, was authorized 
to issue them, after advertisement, at such rates of inter- 
est as might be offered by the lowest responsible bidders. 1 
Notes were soon afterward issued, under this Act, for the 
following amounts, at the rates specified : — 

1 Act, Dec. 17, 1860, 36 Cong., second session, chap. 1. 



602 FINANCIAL HISTORY OF THE UNITED STATES. [i860. 



Per 



$70,200 
5,000 
24,500 
33,000 
10,000 
65,000 
10,000 

160,000 
77,000 



cent. 

6 



8} 

9 



Per cent. 

$1,027,500 10 

266,000 10£ 

623,000 10| 

1,367,000 lOf 

1,432,700 11 

4,840,000 12 



$10,010,900 



The public debt on the 1st of July, 1860, exceeded sixty- 
four millions ; and this large increase had been caused, 
not by any extraordinary outlay, but solely by reducing 
the revenues to a foolishly low point. It is true, when 
the tariff of 1857 was amended, a financial crisis was not 
expected ; but, even if it had not come, the prosperity 
of no business was hazarded by letting the tariff remain. 
By lowering the rates, and sinking the receipts below the 
expenditures, and doing nothing to extricate the govern- 
ment from that situation for three years, its credit was 
seriously shaken. For such financial mismanagement no 
possible excuse could be given. 

The political horizon darkened near the close of 1860. 
Cobb, the secretary of the treasury, resigned a few days 
after making his annual report, and Philip F. Thomas of 
Maryland was appointed his successor ; but he remained 
at the head of the treasury department only a month, 
and then John A. Dix succeeded, who served during the 
remainder of President Buchanan's term. It was while 
Gen. Dix administered the finances, therefore, that the 
treasury-notes above mentioned were sold. So low had 
the credit of the government fallen, he recommended 



1861.] APPROPKIATIONS AND EXPENDITURES. 603 

to the Committee of Ways and Means that the States 
be asked to secure the repayment of money which the 
government should borrow by pledging the public de- 
posits received by them in 1836. He thought that a loan 
resting on such a basis might receive the favorable atten- 
tion of capitalists. 1 

On the 1st of February the committee reported a bill 
authorizing a loan of $25,000,000. The secretary of the 
treasury had previously declared that there would be a 
probable deficit in the revenue of $21,677,524. The de- 
ficiency bill contained appropriations amounting nearly to 
$3,000,000 : thus there was an estimated deficiency of 
$24,000,000 ; while the amount in the treasury on the 1st 
of January was only $2,233,220. Imports had very much 
declined in consequence of political complications. 

The bill was opposed on the ground that the secretary 
still possessed the power, under the Act of June, 1860, to 
borrow fourteen million dollars, and that this amount, at 
least, should be deducted from the proposed loan ; but the 
answer given was, that the balance of the June loan could 
not be sold at the terms prescribed in the law, and, if it 
could be, that the money must be employed to redeem the 
treasury-notes of 1860. The bill passed ; and the Presi- 
dent was authorized to borrow, at any time before the 1st 
of July, twenty-five million dollars to pay current de- 
mands on the treasury, or to redeem treasury-notes. The 
stock was to bear not more than six per cent interest, and 
was to be reimbursable after ten and before twenty years. 
Under this authority, bonds were issued to the amount of 

1 Letter to Com. of Ways and Means, Jan. 18, 1861, No. 20, Mis. Doc, 
36 Cong., second session. 



604 FINANCIAL HISTOEY OF THE UNITED STATES. [1861. 



$,415,000, "at an aggregate discount of $2,019,776.10, 
or an average rate of 189.03 per one hundred dollars." 1 

Only one other financial measure passed, in the last 
hours of President Buchanan's administration, requiring 
notice. Ever since the panic of 1857 the public debt 
had been increasing ; and the secretary of the treasury 
remarked in his report presented in December, 1859, that 
the idea of increasing the public debt to meet the ordi- 
nary expenses of the government should not be enter- 
tained for a moment. Nevertheless, this idea had been 
entertained since July, 1857, as the following figures 
clearly show : — 



Balance in treasury, July 1, 1857 

Public debt, July 1, 1857 . 

Public debt, July 1, 1858 . 

Public debt, July 1, 1859 . 

Public debt, July 1, 1860 . 

Balance in treasury, July 1, 1860 

Debt, less balance in treasury, July 1, 1857 

Debt, less balance in treasury, July 1, 1860 



$17,710,114 27 
29,060,386 90 
44,910,777 66 
58,754,699 33 
64,769,703 08 
3,629,206 71 
11,350,272 63 
61,140,496 37 



A bill to repay outstanding treasury-notes, to authorize 
a loan, and to regulate and fix the duties on imports, was 
introduced into the House, March 12, 1860. One object 
of this bill was to increase the revenues. It was warmly 
debated at that session, but did not pass both Houses. At 
the next meeting of Congress the bill was further consid- 
ered ; and, after many of the Southern members had left 
that body, it was passed, becoming a law on the 2d of 
March, 1861. The contest over it had centred mainly 
on the provisions which related to an increase of the tariff. 

1 Act, Feb. 8, 1861, 36 Cong., second session, chap. 29. 



1861.] APPROPRIATIONS AND EXPENDITURES. 605 

By this law the President was authorized to borrow, 
within one year from its enactment, not more than ten 
million dollars, which were to be applied in discharging 
appropriations and treasury-notes then outstanding. No 
contract could be made, preventing the government from 
reimbursing the amount borrowed, at any time after ten 
years from the first day of July next ensuing. If the 
proposals made for the loan were not satisfactory, the 
President was authorized to issue treasury-notes, instead 
of borrowing money, for the full amount of the loan au- 
thorized, and also to substitute treasury-notes for the 
whole or any part of the money which he was authorized 
to borrow by previous Acts. Notes issued under this law 
were to be redeemed within two years from its date. 
How the law was executed will be stated hereafter. 

Such is the miserable ending of the chapter on finances 
while they were managed by the South under the quasi 
administration of James Buchanan. During the few 
months that Gen. Dix managed them, he displayed wis- 
dom and vigor ; but the evils previously wrought through 
a long course of mal-administration could not be easily 
nor quickly cured. 

During the seventy years covered by this volume, the 
income and expenditure of the government had greatly 
expanded. The appropriation laws multiplied in number, 
and increased in amount. For the year ending the 31st 
of June, 1860, 158,331,650.38 were appropriated, mainly 
by the following entitled laws : military academy ; Indian 
department; consular and diplomatic expenses; naval 
service ; legislative, executive, and judicial ; sundry civil 
expenses ; army ; pensions ; and lighthouses and buoys. 



606 FINANCIAL HISTORY OF THE UNITED STATES. [1860. 



For the public debt there was an appropriation of $ 2,379,- 
841.78, and $15,228,483.93 for treasury-notes. The appro- 
priations for that year were thus classified by the treasury 
department : a — 



Civil list . . 
Miscellaneous . 
Foreign inter 

course . . 
Pensions . . 
Indian depart 

ment . . . 
Chickasaw fund 
Military establish 

ment . . . 
Surveys . . . 
Fortifications . 



$6,032,070 81 
21,697,188 71 

1,115,025 46 
991,784 02 

2,698,387 91 
71,690 10 

14,174,420 23 
135,000 00 
645,000 00 



Internal improve- 
ments .... 

Naval establish- 
ment .... 

Marine corps . . 

Smithsonian Insti- 
tution .... 



Public debt . 
Treasury-notes 



$478,912 41 

9,616,088 48 

663,394 55 

12,687 70 

$58,331,650 38 

2,379,841 78 

15,228,483 93 

$75,939,976 09 



The appropriation laws were framed with more care 
than in the beginning, yet were very defective. Con- 
gress has never shown that regard for economy in ap- 
propriating public money which enstamps the highest 
order of legislation. Sometimes expenditures have been 
authorized by the law which appropriated money to pay 
for them. Sometimes other matters of legislation have 
been crowded into appropriation laws. The power of 
transferring appropriations from one branch of the navy 
department to another branch of it, by order of the Presi- 
dent, existed for many years. 

The Committee of Ways and Means in 1842, when inves- 
tigating the subject of civil and diplomatic appropriations, 
declared that many appropriations had been made for a 

1 Ex. Doc, Receipts and Expenditures, No. 12, 36 Cong., second session. 



I860.] APPROPRIATIONS AND EXPENDITURES. 607 

long time without authority of law. It was then enacted 
that the heads of departments, in communicating esti- 
mates of expenditures to Congress, should specify the 
sources from which such estimates were derived, and the 
calculations on which they were founded, and should dis- 
criminate between conjectural estimates and those framed 
on actual information. They were also required to refer 
to the laws or treaties authorizing the proposed expendi- 
tures. Subsequently, the secretary of the treasury was 
required to prepare the estimates of appropriations early 
enough for the clerk of the House to distribute them at 
the opening of every session. Congress afterward enacted 
that all estimates for the compensation of officers should 
be founded on specific laws, and not on " the authority of 
executive distribution." Laws were made for the guid- 
ance of the heads of departments with respect to ap- 
propriations for the erection of public buildings, or the 
construction of other public works. They were also re- 
quired to designate in their estimates of expenditures for 
the approaching year, beside the amount needed therefor, 
the amount of the outstanding appropriation which would 
probably be required for each particular item of expendi- 
ture. In 1860 Congress prescribed a very complete plan 
for the naval department to follow in giving estimates for 
expenditures. At a later date, laws were enacted relating 
to the estimates of other departments. 

Beside the usual appropriations made every year for 
maintaining the government, there were other appropria- 
tions for the payment of claims, whose validity was de- 
termined by Congress. They were infected with some 
irregularity, which prevented claimants from obtaining 



608 FINANCIAL HISTORY OF THE UNITED STATES. [1855. 

a settlement through the departments. Some of these 
claims were fraudulent : on the other hand, many of them 
were obviously just, yet could not be paid under the laws 
and regulations established for the guidance of the de- 
partments. In these cases, therefore, the claimant could 
appeal only to Congress for relief. 

Accordingly, in 1794, a committee of claims were ap- 
pointed, to whom these matters were referred, and who 
investigated them, and reported thereon to Congress. 
The committee had jurisdiction of all claims against the 
United States in which money was demanded, or a release 
from paying it to the government was desired, or in 
which the claims had reference to public lands, or per- 
tained to a pension. 

The business of the committee grew so heavy, that a 
division of it became necessary. Consequently, in 1805, 
Congress created the committee on public lands; eight 
years later, that on pensions and Revolutionary claims ; 
in 1816, the committee on private land claims ; in 1825, 
that on Revolutionary pensions ; and six years afterwards, 
another on invalid pensions. 

Notwithstanding this division of the business, many 
claims were not considered each session, because there was 
not time. In the earlier years of the government, a strict 
adherence to statutes of limitations, requiring the presen- 
tation of claims within a short period, debarred many 
claimants. Not only was much time consumed by such 
investigations, but these were often imperfect; and the 
unfitness of a committee of Congress to serve as a tribu- 
nal to hear and adjust these matters was apparent long 
before any remedy was applied. Finally, in 1855, Con- 



I860.] APPROPRIATIONS AND EXPENDITURES. 609 

gress established a court of claims, to which claims against 
the government were referred. 1 Though performing a 
good service, the jurisdiction of this tribunal should be 
enlarged, statutes of limitation need reviving, and, when 
claims have been heard and determined, further proceed- 
ings should be forbidden. 2 

i Keport, April 26, 1848, No. 498, 30 Cong., first session. 
2 Richardson's History, Jurisdiction and Practice of the Court of 
Claims. 



INDEX. 



A. 

Accounting, report of committee on 
i system existing in the treasury de- 
partment, 567; arrangement of offi- 
cers, 569; criticism on the system, 
570; number employed, 571; mode 
of adjusting accounts, 571-573; crit- 
icism on it, 573; abolition of triple 
examinations, 573; abolition of of- 
fices, 574 ; report of committee on 
tenure of office, 574 ; regulations 
concerning contracts, 574, 575 ; 
change of fiscal year, 575. 

Accounts of old treasury* board un- 
der the Confederation, 7; how kept 
in the beginning, 14 ; how duties 
and loans were received, 14; war- 
rants for receipts and disburse- 
ments of money, 15 ; different 
modes of receiving money ex- 
plained, 15 ; how disbursements 
were made, 16 ; preservation of 
system, 17 ; difficulty in keeping 
account of different revenues, 56; 
improvements in accounting for 
money, 189. 

Appleton, Nathan, on the tariff, 421, 
424. 

Appropriation bills, estimates very 
general at first, 182; Gallatin tried 
to make them more specific, 182; 
Wolcott opposed to this, 182; rev- 
enues at first specified for paying 
appropriations, 183; bills become 
more specific, 183; permanent ap- 
propriations, 184 ; application of 
money appropriated, 184; construc- 



tion of bills by treasury depart- 
ment, 185; appropriations to cease 
after two years, 186; appropriation 
of money to be spent by order of 
the President, 187 ; investigation 
into application of money appro- 
priated, 187-189; improvements in 
appropriating money, 189; basis of 
receipts and expenditures, 191; first 
appropriation bill, 191; sources of 
revenue, 192; increase of expendi- 
ture, 193; appropriation for navy, 
193; opposed by Gallatin and his 
party, 194; further expenditure on 
the navy, 195-197; weakening of 
the credit of the government, 197. 
Appropriations and expenditures, 
1815-1828, increase of receipts in 
1815,518; difficulty in making esti- 
mates, 518; what Dallas proposed, 
519-521; unexpended balances, 521; 
condition of treasury when Craw- 
ford accepted office, 522; financial 
reforms introduced, 523-525; how 
payments to and by the govern- 
ment were made, 523; difficulty in 
estimating receipts and expendi- 
tures, 525-527; repeal of internal 
revenue, 527, 528; increase of ex- 
penditures, 528; decline in revenue 
and loans required, 528; hesitation 
in retrenching, 529-532 ; commit- 
tees of Congress on the situation, 
529, 538 ; also select committee, 
530; effect of paper money in di- 
minishing the revenue, 531; loans 
made by government to individ- 
uals, 532; financial reforms, 532- 
611 



612 



INDEX. 



535 ; Rush's administration of the 
treasury, 535-537 ; condition of, at 
close of his term, 536. 

Appropriations and expenditures, 
1828-1810, increase of imports in 
1828, 539 ; unsatisfied appropria- 
tions, 539-541 ; increase of expendi- 
tures, 541, 516, 547; removal of de- 
posits, 542; investigation of postal 
department, 543-545; accumulation 
of money in the treasury, 545, 517, 
548 ; revenue from public lands, 
545; failure of the banks, 548; Con- 
gress convened, and secretary's re- 
port to, 549; laws to aid the treas- 
ury, 550; issue and redemption of 
treasury-notes, 550, 551, 552 ; re- 
ceiving of notes of suspended 
banks by the government, 551 ; 
fluctuation of revenue, 552 ; Wood- 
bury's recommendations in an- 
nual report of 1836, 553 ; necessi- 
ty of adopting a plan for keep- 
ing the surplus, 554 ; sub-treasury 
established, 555 ; slow reduction of 
expenditures, 556 ; corruption of 
government officers, 556 ; condi- 
tion of treasury at the close of 
Woodbury's term, 565. 

Appropriations and expenditures, 
1840-1860, increase of indebted- 
ness, 576; Ewing recommends fund- 
ing the treasury-notes, 577; Spen- 
cer's issue of treasury-notes, 577- 
579 ; failure to negotiate loan in 
Europe, 580; need of retrenchment, 
580 ; assumption of State debts, 
580-582; the change of secretaries 
during Tyler's administration, 582; 
why Spencer resigned, 583; Bibb's 
views on reducing the debt, 583 ; 
committee differ from him, 583 ; 
wasteful expenditures, 584-587 ; 
Spencer's estimate of expenditure 
criticised by committee, 587-589 ; 
taxation of tea and coffee, 587; in- 
crease in 1844 of revenue, 589 ; un- 
expended appropriations, 589; tariff 
revised, 589 ; loans contracted to 
carry on Mexican war, 590-594 ; 



cost of the war, 594,; reduction of 
the debt, 595; premium paid by the 
government to obtain it, 595, 598 ; 
modes of buying stock, 597 ; amount 
of debt at beginning of Pierce's ad- 
ministration, 598 ; amount due to 
Indian tribes , 599 ; reduction of 
revenue, 599; issue of more treas- 
ury-notes, 600, 602; public debt in 
July, 1860, 602, 604 ; condition of 
treasury at end of 1860, 602 ; Feb- 
ruary loan of 1861, 603; March loan 
of 1861, 604 ; number of appropria- 
tion laws in 1860, 605 ; their defec- 
tive nature, 606 ; amount appro- 
priated, 606 ; additional require-, 
ments in making estimates, 606 ; 
establishment and efficiency of 
court of claims, 607-609. Gallatin ; 
War of 1812. 
Astor, John Jacob, subscribes to gov- 
ernment loan, 227. 



B. 



Bacon, Ezekiel, chairman of commit- 
tee of ways and means, 245. 

Bank, first United-States, necessity 
for, 127; powers of, 128; how gov- 
ernment paid for its stock, 129-131; 
loans from the bank, 131-139 ; du- 
ties pledged for their payment, 131; 
different kind of loans, 132-135; 
delay in reimbursing them, 135- 
139 ; opposition of Jefferson and 
others to the bank, 139-142 ; gov- 
ernment money deposited with it, 
142 ; benefits received by the gov- 
ernment from it, 143 ; complaints 
of partisanship in accommodating 
the public, 144 ; stockholders pe- 
tition for renewal of charter, 145 ; 
Gallatin favored renewal, 145 ; de- 
bate on the subject, 147-152 ; vote 
on renewal, 151 ; withdrawal of 
deposits, 152 ; effect of not renew- 
ing the charter, 152-155 ; notes 
everywhere received, 261. 

Bank, second United-States, Dallas 



INDEX. 



613 



recommends it, 278 ; State banks 
opposed to it, 279; also speculators 
in exchange, 281 ; Madison vetoes 
first charter, 280 ; bank generally 
favored, 317 ; object of establishing 
it, 317 ; capital and powers, 318 ; 
extent of depreciation of money at 
time of beginning operations, 318 ; 
prosperity of State banks, 319 ; 
causes favoring resumption, 320 ; 
arrangements for resuming, 320- 
323; first use of its notes, 323; con- 
sequence of policy first adopted in 
issuing them, 323, 324 ; specie im- 
ported, 325 ; discounts curtailed, 
325 ; policy adopted by Cheves, 
326, 328 ; success in restoring spe- 
cie payments, 328 ; bank equalizes 
rates of exchange, 330 ; effect of 
contracting discounts, 329 ; Ra- 
guet's report on the subject, 329 ; 
nature of circulation furnished by 
the bank, 331-334 ; Jackson's en- 
mity to it, 334 ; views of Ingham, 
McLane, and Duane, 336, 343; sen- 
sation produced by removing them, 
338; Taney's report on the subject, 
338-340 ; Congress deems his rea- 
sons insufficient, 340 ; opinion of 
merchants, 340-343 ; effort of the 
bank to renew its charter, 343 ; 
President vetoes the bill for re- 
newal, 343 ; Senator Clayton's 
prophecy, 343; subsequent conduct 
of the bank toward the govern- 
ment, 344; value of its stock when 
charter expired, 345 ; settlement 
with the government, 345. Banks. 
Banks, State, in existence when first 
United-States bank was founded, 
127; use of their notes by the gov- 
ernment, 20, 551 ; increase of, after 
the close of first United-States 
bank, 154, 261 ; amount in 1812 of 
their capital, 219 ; their notes re- 
placed those of former bank, 261; 
subscribe freely to national loans, 
262; inexcusable course in expend- 
ing their notes, 263 ; suspend spe- 
cie payments, 264; profess a desire 



to resume them, 265; effect of sus- 
pending, 265-268; government de- 
prived of its deposits, 269 ; loss to 
government from State banks, 225; 
Dallas asks them to assist the 
treasury, 270; unfitness of treasury- 
notes to serve as bank circulation, 
271 ; how the notes of State banks 
were received by the government, 
272 ; debt increased by accepting 
depreciated bank-notes, 273 ; other 
ways in which they affected the 
government, 274-276 ; might have 
assisted the government and indi- 
viduals more than they did, 277 ; 
Dallas's proposition to the banks 
to resume specie payments, 282 ; 
amount of their specie 282 ; prosper- 
ity of, at time of establishing second 
United-States bank, 319 : deposits 
restored to them in 1833, 346 ; effect 
of the change, 346-351 ; rapid in- 
crease of State banks, 346 ; efforts 
of government to circulate more 
specie, 347; bank accommodations 
increase speculation, 348 ; specie 
circular, 348, 350 ; banks fail, 351 ; 
condition of bank circulation at 
the time, 351 ; banks keep deposits 
from 1840 to 1846, 354. 

Barker, Jacob, his loans to the gov- 
ernment, 231-234. 

Baring, Alexander, buys the govern- 
ment bank-stock, 66, 

Bell,ofTennessee,on the tariff, 421 ,422. 

Benton, Senator, on the tariff, 403, 
404, 405, 406 ; coinage, 347- 

Bibb, secretary of the treasury. Ap- 
propriations, 1840-1860. 

Biddle, Nicholas, effect on prices of 
excessive paper issues, 410. Bank, 
Second United-States. 

Boudinot, on importing cents, 167; on 
coinage, 165. 

Bradford, Samuel D., effect of tariff- 
law of 1828 on prices of imports, 
407-409. 

Brougham, Lord, on stifling Amer- 
ican manufactures, 359. 

Buchanan, on the tariff, 376-378. 



614 



INDEX. 



Campbell, appointed secretary of the 
treasury, 297 ; his inefficiency, 297. 
Loans ; War of 1812. 

Canadian goods, drawback on, 485. 

Canning resolves to crush American 
commerce, 212; his success, 284. 

Cheves, Langdon, declines office of 
secretary of the treasury, 297 ; his 
administration of second United- 
States bank, 326. 

Claiborne, on the tariff, 401 ; estab- 
lishes a bank at New Orleans, 142. 

Claims, establishment of court of, 
607-609. 

Clay, on the tariff, 362, 368, 410, 413, 
424. Tariff. 

Clayton, Senator, his prophecy, 343. 

Cobbett, on the growth of American 
manufactures, 288. 

Coinage, Spanish dollar the basis of 
reckoning, 156 ; need of mint and 
money standard, 156 ; Hamilton's 
report on the subject, 156-159; Jef- 
ferson's report, 159; establishment 
of mint, 159 ; value of coins fixed, 
159, 161; coinage free, 162; control 
of mint given to State department, 
161 ; difficulties in coming, 161- 
165; alteration of standard by mint 
officers, 161-163 ; money appropri- 
ated to purchase bullion, 165; com- 
pensation for refining, 165; amount 
coined at end of century, 166; clos- 
ing of mint urged, 166 ; coinage of 
cents, 167 ; removal of mint, 168 ; 
greater efficiency of, 168 ; expense 
of, to 1809, 168 ; circulation of for- 
eign coins, 169-174 ; Quincy's re- 
port, 171 ; Gallatin's views, 172- 
174; efforts of Jackson and Benton 
to increase specie circulation, 347 ; 
change in relative value of gold 
and silver, 502; Dallas's remedy to 
prevent exporting gold, 503; expor- 
tation prior to 1812 of gold, 503; 
exportation of American silver, 504; 
exportation prevented by the rate 
of exchange, 504; Lowndes's report 



on coinage, 505; Patterson's recom- 
mendation on the subject, 506 ; 
Whitman's report, 506 ; Sanford's 
report, 507 : Ingham's report, 507 ; 
White's report from select commit- 
tee, 507-509; law of 1834,509; Peid's 
criticisms on the law, 511: coinage 
of gold dollar, 511; why so little 
gold was coined, 511; payment for 
gold and silver deposited in the 
mint, 512, 514; expense of coining 
to depositors, 513; Corwin recom- 
mends the issue of mint certificates, 
514; establishment of branch mints, 

515 ; circulation of foreign money, 

516 ; amount and expense of coin- 
age, 516. 

Commerce, 85. Tonnage Duties. 

Comptroller, duties of, 6. Account- 
ing. 

Corwin, on coinage, 514. Appropria- 
tions, 1840-1860. 

Crawford, speech in favor of renew- 
ing charter of United-States bank, 
151. Debt, Payment of; Appropria- 
tions, 1815-1828. 

D. 

Dallas, A. J., Madison desires to ap- 
point him secretary of the treasu- 
ry, 296; opposition of Pennsylvania 
senators, 297; Dallas appointed, 
298; report on tariff, 360-362; his 
administration of the office, 298- 
300, 522. Appropriations, 1815-1828 ; 
War of 1812, Debt, Payment of. 

Dallas, Vice-President, vote on tariff- 
bill of 1846, 452. 

Debt, funding of the Revolutionary, 
22; Hamilton instructed to prepare 
a report on, 22; different kinds of , 
23; Hamilton's plan, 23; opposi- 
tion to it, 24 ; Hamilton urged pay- 
ment in full, 24; plan for funding 
first portion, 24; funding of interest 
thereon, 25; assumption of debts 
incurred by States, 25; opposition 
of Southern members, 25; nature 
of this part of the debt, 26; amount, 



INDEX. 



615 



27; plan adopted, 27; provision for 
non-subscribers, 28; funding of 
debts between States and the gov- 
ernment, 29; Hamilton's first re- 
port after passage of funding-law, 
30; acceptance of plan voluntary, 
30; the law a compromise, 31; op- 
position to any plan, 32; second 
report on the funding-law, 33, 35; 
extension of time for preventing 
debt, 36, 39; justice of assuming all 
the debts, 36; Gallatin's criticism 
on the funding-system, 37-39 ; report 
on the debts between the States 
and the government, 39; action of 
Congress thereon, 40; subsequent 
action of the States and Congress, 
40, 41. 
Debt, payment of the Revolutionary, 
42; revenue pledged for that pur- 
pose, 42, 45 ; new loans to pay for- 
eign debt, 43, 58; purchase of 
debt, 44; regulations for paying, 
45; Hamilton reports another plan 
for redeeming debt, 47, 50; law en- 
acted in 1795 on the subject, 50; 
criticisms of Gallatin and commit- 
tee in 1802 on the mode of paying, 
52-55; final mode, 55; how pay- 
ment was made, 57; discharge of 
debt with foreign funds, 59; pay- 
ment of interest and instalments 
on foreign loans, 60-62; slow reduc- 
tion in the beginning, 62; annuity 
raised to reduce the debt, 63; 
means received by Wolcott for that 
purpose, 63; causes of increase of 
debt, 64; progress of reduction, 65; 
Gallatin's difficulty in remitting 
to Holland, 65; debt increased by 
Louisiana purchase, 66; reduction 
thereafter, 67; exchange of debt, 
69; debt-paying impeded by war, 
69; reduction made by Gallatin, 
70-72; no reduction when Hamil- 
ton resigned, 178 ; payment of, dur- 
ing war of 1812, 303; amount in 
October, 1816, 304; funding of treas- 
ury-notes, 304; Dallas's recommen- 
dations concerning the debt, 304; 



enlargement of sinking-fund, 305- 
307; large reduction, 306; Craw- 
ford recommends purchase of stock, 
307; Congress decides otherwise, 
308; exchange of stock, 308; further 
exchange of stock proposed, 309- 
311; amount held abroad, 311; re- 
duction during Crawford's time, 
311; Rush's recommendations, 312; 
reduction under sinking-fund law 
of 1817, 313; rise in price of stock, 
including three per cents, 314; 
rapid payment of, 314; notice of 
final payment, 315. For creation 
and payment of subsequent debts, 
see Appropriations, 1828-1840, and 
1840-1860. 

Debts of States, assumption of, in 
1842, 580-582. 

Deposits first kept in banks, 18; no 
law until 1816, 18, 20; the kind of 
money received, 20; deposits kept 
with first United-States bank, 142; 
withdrawal of, 152; action of State 
banks in retaining government de- 
posits, 269; removal of, from second 
United-States bank, 542; govern- 
ment lost nothing from national 
banks, 21. Bank, First and Second 
United-States ; Banks ; Sub-treasury. 

Dexter, Samuel, succeeds Wolcott 
as secretary of the treasury, 200. 

Dickerson's report on the tariff, 413. 

Disbursements. Accounts. 

Distribution Act, 438, 548; last instal- 
ment to the States not paid, 550. 

Dix, Senator, on warehousing, 481. 

Drawback. Warehousing. 

Duane, appointed secretary of the 
treasury, 336; refuses to remove 
deposits, 337. 

Duffle. McDuffie. 

Dupont, on the tariff, 385. 

Duties, collection of, law of 1799, 
486; need of codifying them, 486; 
objections to ad valorem principle, 
486, 489; home valuation of im- 
ports, 488; Guthrie opposed to it, 
489; inequality of collection laws at 
different ports, 489; consequences 



616 



INDEX. 



of different interpretation, 490-492; 
frauds practised, 492; interpreta- 
tion of treaties, 492, 494; duties, 
how paid, 494; shortening credits, 
496; remission of duties, 497, 498; 
interpretation of tariff of 1833, 498; 
difficulty in interpreting laws, 498 ; 
expense of collecting, 499; pay- 
ment of officers, 500; abolition of 
naval office, 501. Imports ; Tariff. 



E. 



Eppes, chairman of ways and means 
committee, 255. 

Eustis, secretary of war, incompe- 
tency of, 248. 

Evans, Senator, on the tariff, 422. 

Eveleigh, John, appointed comptrol- 
ler, 7. 

Ewing, appointed secretary of the 
treasury, 576. Appropriations, 
1840-1860. 

Expenditures. Appropriations. 

F. 

Fillmore, chairman of ways and 
means committee, 438. 

Financial reforms. Appropriations; 
Accounting. 

Fiske, on renewing charter of first 
United-States hank, 147-150. 

Florida, purchase of, 209, 312; frauds 
growing out of war in, 558. 

Foot, Senator, on the tariff, 405. 

Foreign indebtedness settled by 
transfer of American securities, 
456; payment of foreign Revolu- 
tionary officers, 46; amount of 
American securities held abroad, 
311. 

Forward, Walter, appointed secre- 
tary of the treasury, 582. Appro- 
priations, 1840-1860. 

Fuller, on the tariff, 376. 

G. 

Gallatin, his early political career, 
177, 182, 203; J. Q. Adams's opinion 



of his honesty, 204; condition of 
treasury when he entered office, 
204; his worth to Jefferson, 205; 
abolition of internal taxes, 207 ; in- 
crease of taxes in consequence of 
Tripolitan war, 207 ; Jefferson's rec- 
ommendations for dry docks,. 208; 
opposes the creation of a navy, 208; 
reduction of debt, 209; had no faith 
in embargo measures, 212; what 
financial preparation for war of 1812 
was needed, 212-215; recommends 
accumulating a war-fund, 219; 
loans the principal war resource, 
219; plan of finance at outbreak of 
war, 220; need of increasing the 
revenue, 220; deficit in the treas- 
ury, 213; letter to committee of 
Congress, 214; hostility to him, 
215, 221; goes abroad to negotiate 
a treaty, 215; triumph of his ene- 
mies, 216; his opinion of the fund- 
ing system, 37-39; on paying the 
debt in 1802, 52-55; on exporting 
gold, 504. Appropriation Bills; 
Bank, First United-States; Banks; 
Coinage; Debt, Payment of; De- 
posits ; War of 1812 ; Imports ; In- 
ternal Improvements ; Internal Reve- 
nue. 

Garland, Hugh A., on State banks, 
346. 

Gerry's opposition to appointment of 
secretary of the treasury, 3. 

Girard's subscription to loan, 227. 

Goodrich's opinion of Congress in 
delaying to pay first United-States 
bank, 137. 

Gouge, on the sub-treasury, 356. 

Guthrie, James, on reduction of du- 
ties, 460; opposed to home valua- 
tion, 489; ability of, 597. Appro- 
priations, 1840-1860. 



H. 



Hale, Nathan, on the tariff, 384. 
Hayne, on the tariff, 404. 
Hamilton appointed secretary of the 
treasury, 6; difficulty of his posi- 



INDEX. 



617 



tion, 6; believed that creation of 
debt and means of extinguishment 
should go together, 5G; Morris's 
opinion of his ability, 22; resigna- 
tion, 175; his achievements, 175- 
181; his measures opposed as cen- 
tralizing, 176; causes of his success, 
176; investigation of his conduct, 
178 ; his adoption of English finan- 
cial system, 179; his influence with 
his party, 180. Accounts ; Appropri- 
ation Bills ; Bank, First United- 
States ; Coinage ; Debt, Funding 
of; Debt, Payment of; Deposits; 
Imports ; Internal Revenue. 
Hunt, on the tariff, 400. 



I. 



Immigrants, amount of specie 
brought by them, 517. 

Imports, 72; resolution introduced 
by Madison, 74; Hamilton opposed 
to permanent bill, 74 ; he favored a 
general ad valorem duty, 74; enact- 
ment of first law, 75; increase of 
rates, 76; Gallatin's criticism on 
salt-duty, 77; scope of early laws, 
77; English Government opposed 
to American manufactures, 78; cir- 
cumstances which favored manu- 
facturing, 79; application to Con- 
gress for protection, 82; progress 
made, 83; action of Congress on 
the application of manufacturers, 
84; war favored them, 85; impedi- 
ments, 85; machinery purchased 
and exported, 86; different kinds 
of duties, and Hamilton's objec- 
tions to ad valorem system, 87; 
their collection, 87; fraud of im- 
porters, 91 ; mitigation of fines, 91- 
93; applications for remission, 93; 
drawbacks, 95-102; tax on them, 
96; drawback on refined sugar, 99- 
101; importations checked by too 
high duties, 101. Manufactures; 
Tariff; Duties, Collection of. 

Independent treasury. Sub-treasury. 

Ingersoll's opinion of Dallas, 299. 



Ingham, appointed secretary of the 
treasury, 538; opposed to removal 
of deposits, 336; favored home val- 
uation of imports, 488; averaging 
credits on duties, 495; on coinage, 
507; on tariff, 410. Appropriations, 
1828-1840 ; Debt, Payment of. 

Internal improvements, Gallatin's 
plan of, 69, 210. 

Internal revenue, opposition to the 
tax, 103; especially in Pennsylva- 
nia, 107; how it was to be paid, 
104; Hamilton's report thereon, 
104-107; law modified, 108; Galla- 
tin's views on the subject, 109-111; 
increase of tax, 111; effect of, 111; 
carriages taxed, 112; auction sales, 
refined sugar, and snuff, 113; in- 
come less than was expected, 114; 
opposition of Federal party to the 
system, 115; Wolcott favored direct 
taxation, 116; his report, 118; ac- 
tion of committee of ways and 
means, 119, 121; law for direct tax 
passed, 121; opposition to it, 121; 
number and expense of officers 
employed in collecting tax, 122- 
124; argument in favor of collect- 
ing it, 124; repeal of internal taxes, 
124; Randolph's report on, 125; 
their repeal a party necessity, 126, 
207; need of the system in 1812, 
227, 242 ; not at first contemplated 
by Gallatin, 244; their necessity, 
246; opposition to them, 249; how 
they might have been avoided, 260; 
their repeal in 1817, 527. War of 
1812; Gallatin. 



J. 



Jackson, President, letter on tariff 
during presidential canvass, 394. 
Bank, Second United-States ; Appro- 
priations, 1828-1840. 

Jackson, Joseph, on the tariff, 427. 

Jefferson's report on coinage, 159; 
hostility to first United-States 
bank, 140, 141; gunboat scheme, 
211; dry docks, 208; suggests issu- 



618 



INDEX. 



ing paper money in war of 1812, 
237. Gallatin. 

Johnson, W. C, attempts to negoti- 
ate loan in Europe, 580; report on 
assumption of debts of States, 580. 

Jones, William, succeeds Gallatin in 
the treasury department, 294; re- 
port on prize goods, 294; reports on 
condition of the treasury, 295; why 
he was kept there, 296; manage- 
ment of second United-States 
bank, 318-327. 

K. 

Kent, Senator, on effect of multiply- 
ing State banks during the war of 
1812, 263. 



Lacock, Senator, opposition to Dal- 
las, 298. 

Land, speculation in, 348; revenue 
.from, 545. 

Livingston, on drawbacks, 483; their 
object to increase navigation, 483; 
drawback law of 1816, 484. 

Loans, early, 43, 58, 73; to equip navy, 
197, 199; first war-loan of 1812, 221, 
223, 225; issue of treasury-notes, 
223; sixteen-million loan, 225-229; 
seven and a half million loan, 229; 
twenty-five million loan, 229-231; 
six-million loan, 231; three-million 
loan, 233; final loan of the war, 239- 
241; European loan in 1842, 580; 
loans in 1861, 603, 604; loans made 
by government to individuals, 532; 
loans in consequence of decline in 
revenue in 1820, 528. Bank, First 
United-States. 

' Louisiana, purchase of, 66. 

Lowndes, on the coinage, 505. 

M. 

Macon, chairman of committee of 

ways and means, 299. 
Madison, on the tariff, 24, 74; lacked 



firmness, 248; vetoes first charter 
of second United-States bank, 280; 
signs next one, 281. 

Mallory, on the tariff, 395, 396, 397. 

Manufactures stimulated by war of 
1812, 284, 291, 293; previously home 
competition had not affected for- 
eign production, 285; effect of em- 
bargo laws, 285; reluctance to en- 
gage in new enterprises, 286; their 
increase, 287-289; high prices, 289; 
large profits, 290; evil consequences 
of, 290. Imports ; Tariff. 

Mason, attempt to remove him from 
presidency of branch bank at Ports- 
mouth, 335. 

McDuffie, on the tariff, 402, 414, 419; 
second United-States bank, 331. 

McKay, on the tariff, 445. 

McLane, secretary of the treasury, 
on paying the debt, 313, 315; 
United-States bank, 336; unsatis- 
fied appropriations, 539; tonnage 
laws, 470. Appropriations, 1828- 
1840. 

Meredith, secretary of the treasury, 
595. Appropriations, 1840-1860. 

Mint. Coinage. 

Money, kind of, first received by the 
government, 21; pressing need of, 
in beginning, 73; money in cir- 
culation in war of 1812, 261 ; effect 
of paper money in diminishing the 
revenue, 531. Treasury -Notes ; Dal- 
las. 

Morris's opinion of Hamilton, 22. 

N. 

Navy department established, 12; 

relation to other departments, 12. 
Nicholson, Gallatin's letter to, 221. 

P. 

Parish's loan to the government, 227. 

Patterson, on coinage, 506, 512; for- 
eign coins, 171. 

Postal department, investigation of, 
543-545. 

Public land. Land. 



INDEX. 



619 



Q. 



Quincy's report on the circulation of 
foreign coins, 171. 

R. 

Raguet, on the effect of contracting 
the currency, 329. 

Randolph, on paying the debt, 52; re- 
peal of internal revenue laws, 125. 

Reid's criticism on coinage law of 
1834, 510. 

Revenue, loss from collecting, 201, 
293; frauds in collecting, 293. Du- 
ties, Collection of; Imports; Appro- 
priations; Tariff. 

Rush, on paying the debt, 312 ; ad- 
ministration of the treasury, 535- 
537. 



s. 



Sabine, on tonnage laws, 470. 

Sanford, on coinage, 507. 

Scot's proposition to coin cents, 167. 

Sheldon, chief clerk of treasury, and 
negotiates loans, 239. 

Sinking-fund. Debt, Payment of. 

Sinking-fund commissioners, appli- 
cation of money received by them, 
67 ; no Act passed abolishing their 
office, 316. Debt, Funding of, and 
Payment of. 

Smith, Senator, opposed to second 
United-States bank, 151, 332; op- 
posed to Gallatin, 247. 

Smith, Robert, secretary of the navy, 
wrongly uses public money, 213; 
favors Jefferson's gunboat scheme, 
211; squanders public money, 213. 
War of 1812. 

Snyder, Gov., vetoes charters of 
State banks, 261. 

State debts. Debts of States. 

Specie circular. Banks. 

Specie payments, 154, 155. Banks; 
Appropriations, 1828-1840. 

Spencer, secretary of the treasury, 
why he resigned, 583. Appropria- 
tions, 1840-1860. 



Stevenson, elected speaker of the 
House as an anti-protectionist, 395. 

Stevenson, J. S., on the tariff, 399. 

Sub-treasury system, establishment 
of, 351; Congress opposed to it, 352; 
" exchequer plan " for keeping de- 
posits, 353, 579; established in 1846, 
355; law defective, 355; working of 
the system, 356-358. Appropria- 
tions, 1828-1840 and 1840-1860. 

Sugar, drawback on refined, 99-101. 

Sullivan, Gov., on balance of trade, 
81. 

Surplus fund, first application of, to 
redeeming funded debt, 57 ; appro- 
priations to cease after two years, 
186. 

T. 

Talbot's report on coinage, 503. 

Taney's removal of the deposits, 337; 
his report thereon, 338-343. Bank, 
Second United-States. 

Tariff, 1816-1824, imp rts after tbt> 
close of the war in 1812, 359; report 
of Dallas on, 360-362; bill of 1816, 
362; debate on, 362; nature of, 365; 
" minimum principle," 365, 368; ef- 
fect of the law, 366; auctions, 366; 
how consumer was affected, 366; 
woollen-manufacturers, 367; cotton 
bagging, 368; spirituous liquors, 
369; iron-manufacturers, 370-372; 
general result, 372-374. 

Tariff, 1824-1832, disappointment of 
manufacturers in former tariff, 375; 
effects of competition, 375; bill of 
1824, 375; debate, 376-379; effect of 
law on cotton-manufacturers, 379- 
381 ; New England engages in man- 
ufactures, 382 ; paper-manufac- 
tures, 382; iron, 382; sail-duck, 383; 
glass, 383; wool and woollen manu- 
facturers, 383-387, 392; auctions, 
387-390; decline of American im- 
porters, 389; goods entered at ficti- 
tious prices, 390; advantage of for- 
eign importers, 391; injurious effect 
of graduated system of levying du- 



620 



INDEX. 



ties, 392; Harrisburg meeting of 
manufacturers, 393; Jackson's let- 
ter on tariff in presidential canvass, 
394; composition of committee on 
manufactures in 1829, 395; their 
mode of proceeding, 395; debate 
on the bill, 397-406; vote on the 
bill, 402 ; effect of the law on prices, 
406-410; Clay's resolution to re- 
duce the tariff, 410-412. 

Tariff, 1832-1842, report on Clay's 
resolution, 413; McDuffie's report, 
414-416; minority report, 416-418; 
Adams's report, 418; McDuffie's 
speech, 419-421; Appleton's reply, 
421; debate continued, 421; bill 
passed, 422; action of South Caro- 
lina, 422; Jackson recommends re- 
ducing the duties, 423; Verplanck's 
bill, 423; Clay's bill, 424; criticism 
of bill, 425-427 ; effect on iron-manu- 
factures, 427; glass, 427; cotton, 428,- 
woollen-manufactures, 429, 431 ; 
sugar and sugar-refining, 431-433. 

Tariff, 1842-1846, decline in manu- 
facturing, 434; Forward's report on 
tariff, 435 ; report of committee on, 
436 ; discussion of, 437 ; rejection of 
bill, 438; new tariff-bill, 439; effect 
of, on imports, 440-442; need of 
more revenue, 442; Bibb, on the 
tariff, 443, 445; effect of frequent 
changes of, 444; increase of im- 
ports, 445; reduction of prices, 445; 
effect of law on manufactures, 446- 
448. 

Tariff, 1846-1860, Walker's report, 449- 
452; enactment of new law, 452; 
nature of it, 452; working of it, 453; 
effect of Mexican war, 454; " Amer- 
ican Review" on the tariff, 454; 
growth of fraud, 454; hostility of 
Democratic party to tariff, 455; ef- 
fect of Irish famine, 455; California 
gold discoveries, 455; transfer of 
American securities to pay for- 
eign debts, 456; effect of outflow of 
gold, 456,458; suffering of woollen- 
manufacturers, 456; cotton-manu- 
facturers, 457; success of law as a 



revenue measure, 459; reduction 
of duties, 460; general result of the 
action of the government, 461-466. 
Imports; Duties, Collection of; Ware- 
housing and Drawbacks. 

Taxes, direct, preferable to imports, 
115. Internal Revenue. 

Tonnage-duties, object of them, 467; 
bebate of bill, 75; Acts of 1789 
and 1790, 467; early prosperity of 
American commerce, 468; treaty 
of 1815 with Great Britain, 469, 
472; decline of trade with the 
West Indies, 470; MacLane's ar- 
rangement, 470; repeal of colonial 
navigation-laws by Great Britain, 
472; treaties with other nations, 
473; effect of policy adopted by 
our government, 473, 475; regula- 
tions with Spain, 474-477. 

Treasury department, organization 
of, 3; secretary required to digest 
plans, 4; to report in writing, 5; 
officers of, 5; could not engage in 
business, 6; duties of secretary, 5; 
how clerks were appointed, 6; ap- 
pointment of Hamilton, 6; relation 
between treasury and war depart- 
ments, 7-12; fire in former, 201; 
completion of organization, 201. 

Treasury-notes, first issue of, 223; 
amount in circulation in 1814, 234; 
further issues, 236, 238; took the 
place of bank-notes, 276; attempt 
to recover the amount of deprecia- 
tion from the government, 283; 
funding of them, 304. Appropria- 
tions, 1828-1840, and 1840-1860 ; War 
of 1812. 

Trust-funds, investment of, 596. 



Van Buren's administration, 351. 
Verplanck's tariff bill, 423. 

w. 

Walker, R. J., on tariff of 1833, 426; 
appointed secretary of the treasury, 
449. Appropriations, 1840-1860. 



IXDEX. 



621 



War department, establishment of, 
7; mode of conducting business, 
7-12. 

War of 1812, danger of, 212-214; dis- 
astrous events of the first year, 
224; no economy in expenditures, 
224; tbey exceed the estimates, 
229; low state of the finances, 232; 
difficulty in raising funds, 234; 
failure of original plan of finance, 
235; committee of ways and means 
favor increased taxation, 236; Gal- 
latin's views on the subject, 242, 
244; neglect of Congress to heed 
them, 244; he reiterates them, 244; 
report of committee, 247; effect of 
report, 247; opposition to Gallatin 
maintained, 248-250; he did not ask 
for enough taxes, 250; Congress 
obliged to levy them, 250; Galla- 
tin's system same as that he for- 
merly condemned, 251 ; inaction 
of Congress, 252; special session, 
253 ; need of more money, 255 ; rec- 
ommendation of committee, 255- 
257; taxes increased and multi- 
plied, 257-260; Dallas's picture of 
condition of the treasury in 1814, 
268; condition at later period, 271; 
why Dallas did not compel debtors 
to pay in coin, 277. Banks. 



"Warehousing and drawbacks, law of 
1799, 478; shortening of credit 
period, 480, 495-497; law of 1842, 
480-484; Dix, on warehousing, 481; 
effect of law on imports, 481; dis- 
satisfaction with the law, 482. 

"Warrants. Accounts. 

Webster, on the tariff, 378, 379. 

White's report on coinage, 506. 

"Whitman's report on coinage, 506. 

Willing, president of the first 
United-States bank, 129. 

Witherspoon, on funding the debt, 
24. 

"Wolcott, appointed auditor, 7; after- 
ward secretary of the treasury, 
180; adopts Hamilton's policy, 
180; resigns, 200; investigation of 
treasury department, 200; views 
on paying the debt, 63. Internal 
Revenue ; Appropriation Bills ; Bank, 
First United-States; Loans; Debt, 
Payment of. 

"Woodbury, secretary of the treasury, 
on final payment of the debt, 316. 
Appropriations, 1828-1840, and 1840- 
1860. 

"Wright, Senator, of Maryland, 
against increasing taxes, 249. 

"Wright, Silas, on the tariff, 395, 396. 



^k 



